# Fantastic resource



## PerryM (Jun 6, 2007)

The Helium Report is just the mouthpiece for the DC industry – they must make a bunch of money as their spokesman.

Wikipedia has an excellent article on DCs and you can add your wisdom to it if you wish.

Just thought you’d like to see a non-industry biased version of DC knowledge (besides TUG).


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## Sir Newf (Jun 6, 2007)

Thanks Perry- Excellent information....I hope they do a similar report on Residence Clubs- which I am exploring, as a real estate investor- I prefer a deeded property...


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## travelguy (Jun 6, 2007)

PerryM said:


> The Helium Report is just the mouthpiece for the DC industry – they must make a bunch of money as their spokesman.
> 
> Wikipedia has an excellent article on DCs and you can add your wisdom to it if you wish.
> 
> Just thought you’d like to see a non-industry biased version of DC knowledge (besides TUG).



Hmmm...  Most of this looks familiar.  It appears that a lot of the wikipedia article is directly from the old Helium Report Decision Making Guide to DCs.  That's the problem with the Drive-By Internet; everyone uses the same copy!  

This is actually pretty good background although a little too general (like Helium, IMHO).  The best part is that the article encourages due diligence by each individual.


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## PerryM (Jun 6, 2007)

*Mega Bucks...*



travelguy said:


> Hmmm...  Most of this looks familiar.  It appears that a lot of the wikipedia article is directly from the old Helium Report Decision Making Guide to DCs.  That's the problem with the Drive-By Internet; everyone uses the same copy!
> 
> This is actually pretty good background although a little too general (like Helium, IMHO).  The best part is that the article encourages due diligence by each individual.




True,

But when you read the article in Wiki you aren't asked to check-off 3 DCs and then all 3 of them call you and the Helium Report gets a Bounty for your scalp.

The Wiki article will grow, and parts of other web sites/chat rooms will make it into the article.

Much of the basic information offered in the Helium Report is sound - it's just the salesreps you need to fend off by reading it is my rub.

I think if the Helium Report was honest and said "We make $1 M+ a year in bounties for supplying you with this information" I would not have a problem.  They are biased towards the DC industry that pays their bills.

This is the same problem I have with the Drive-By Media; if they said "We are biased towards ....." I would have a modicum of respect for them.  They, like the Helium Report, pretend to have no bias.


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## Elsway (Jun 6, 2007)

> A Destination Club Association has been formed, and is working with the American Resort Development Association (a non-profit trade group for timeshare industry) to draft a "Model Act" for destination clubs.



This passage refers to the DC industries efforts at self regulation.  At a minimum, these efforts will result in a set of rules governing transparency and protection of membership deposits.  If properly drafted, this could be the spark which ignites hyper-growth in the DC industry.  I think the industry is going to be enormous...


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## PerryM (Jun 6, 2007)

*Is that a fox I see in that henhouse?*

Self regulation of an industry merely serves the needs of that industry.

Any guidelines or laws passed will be bought and paid for by the DC industry for the DC industry's interests.  Take the timeshare industry with the stupid “Same day sales incentives” that are law in many/most states.  Those crazy laws were bought and paid for by the timeshare industry and force Ma and Pa into a $30,000 sale with just 90 minutes of pressure and “right now incentives”.  "Tomorrow state law forbids us from offering your today’s incentives" – what a stupid law our low life politicians passed.

TUG, and other chat rooms, will be where the real industry regulation will occur.  I believe that the vast majority of new timeshare owners who bought from the developer could easily be talked into rescinding if they stumble on TUG in those 5+ days where they can still back out.  I’m guessing many DC owners could be too.

Reading just my posts will at least have the new DC owner taking a few more minutes to think the deal over.  If they then decide to continue then they have at least had a source of information that is not bought and paid for by the developer.  They have done some due diligence with just reading TUG before buying.

As I’ve said, if the DC industry can convince me to cough up the money to buy a DC membership then they have made giant steps in the right direction to self-regulating at least their own company.  (Or they have a cheap membership that I consider a Throw Away investment).


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## Elsway (Jun 6, 2007)

PerryM said:


> Self regulation of an industry merely serves the needs of that industry.



The major "need" of the DC industry is to convince the members of their target market that their membership deposit is safe.

Self regulation is merely a path whereby the DC industry can establish guidelines which make sense for everyone rather than have over zealous lawmakers establish a set of rules based on a misunderstanding of the business and the needs of consumers.


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## PerryM (Jun 6, 2007)

*Follow the money....*



Elsway said:


> *The major "need" of the DC industry is to convince the members of their target market that their membership deposit is safe.*
> 
> Self regulation is merely a path whereby the DC industry can establish guidelines which make sense for everyone rather than have over zealous lawmakers establish a set of rules based on a misunderstanding of the business and the needs of consumers.



Spot on!!
My ONLY concern is the safety of the returnable portion of my membership fee.  If that hurtle is done away with the floodgates are opened to mass consumer participation.  I don't know how long it will be before the DC industry wakes up to this fact.

Probably a major hotel chain or timeshare developer will step in and take the market away from the existing DCs.  By the time their investors decide that perhaps being a little less greedy will ultimately result in much more profit they will be worrying about being bought out by some other DC who is afraid of being bought out too.



Politicians follow the money - these guys take on just about any position to get more of it for their own desires.  If the public dangles more money in front of them than the DC industry we will crawl in that direction and get pro-consumer legislation.  However only rich folks are involved with DCs up to now (at least as perceived by the general public) so there is no spigot of money to drink from the public.

Sadly the DC industry will start to throw around money and attract politicians who will eagerly pass whatever laws the DC industry wants.  Those will not be pro-consumer.


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## Steamboat Bill (Jun 6, 2007)

PerryM said:


> TUG, and other chat rooms, will be where the real industry regulation will occur.  I believe that the vast majority of new timeshare owners who bought from the developer could easily be talked into rescinding if they stumble on TUG in those 5+ days where they can still back out.  I’m guessing many DC owners could be too.



I think you are guessing wrong on the DC owners recending because "VERY FEW" DC members (probably less than 0.5% of all DC members) have actually requested their membership dues to be returned. 

Buyer remorse is one area that the DC industry SMOKES the timeshare industry. In fact, I would argue that they are complete polar opposites. This alone could be a HUGE factor in the success ofthe destination club industry....they actually have happy customers. 

Timeshare sales usually involve high pressure, gimicks, bait and switch, trapping you in a room, free gifting and a buy-it-now attitude. Buying a timeshare is like buying a used car from "Joe's auto mart" where the words buyer beware are an understatement.

In fact, the entire genesis and sussess of TUG is based upon helping people aviod timeshare buying mistakes.

I agree that Helium is less objective than Consumers Report, but they have been very helpful in helping people navigate the Destination Club waters. The Wikipedia article is 100% taken form the Helium Report Buyers Guide from last year.

Sherpa reports is also a valuable resource for destination club information.

Either way, both web sites generate income (perhaps 100%) from advertisers or new member referrals from the clubs. However, I have found that the web sites do NOT favor any one club. I think most of their information is well thought out, with the only exception that they realy should be pushing for some industry plan to protect member deposits.


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## Sir Newf (Jun 6, 2007)

*My DC prediction...*

...my prediction is that these smaller and mid sized DC's will position themselves (ie: enough properties, members, and paper profit) to be acquisition target for high end Resort developer or larger DC's or fractionals....the folks that stand to make lots of $ are the founders of the small/mid-sized DC's...the members will be left to accept whatever new terms will be presented by new owners and without Deed or Bond, luck would be on members' side to recoup the 80%....just my 'crystal ball' analysis....


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## PerryM (Jun 6, 2007)

*Guaranteeing the Guarantee and looking over the shoulder*



Steamboat Bill said:


> I think you are guessing wrong on the DC owners recending because "VERY FEW" DC members (probably less than 0.5% of all DC members) have actually requested their membership dues to be returned.
> 
> Buyer remorse is one area that the DC industry SMOKES the timeshare industry. In fact, I would argue that they are complete polar opposites. This alone could be a HUGE factor in the success ofthe destination club industry....they actually have happy customers.
> 
> ...



Agreed!

Happy customers spending big big bucks is why the timeshare folks are eyeing this market.  You know that they could draw up the plans over a weekend.  No real estate laws to worry about, unlimited freedom to advertise.  Imagine a sales manager who sells to happy folks who remain happy!

For this reason the DC should be running as fast as they can to address the issue of providing some kind of security for the member's guaranteed return.

I can't overstress that the returnable portion is GUARANTEED by the DC.  But they really have no way of guaranteeing the Guarantee.

To the DC industry:
*What makes you think that Marriott, or Westin couldn't use the same sales offices and sales reps to sell DC's next week?

Why on earth you have not addressed the refundable portion of the membership fee is beyond me and speaks volumes of your lack of concern of being made irrelevant next week by a timeshare company who has all the muscle to make you obsolete by month's end.*


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## Bourne (Jun 6, 2007)

> Why on earth you have not addressed the refundable portion of the membership fee is beyond me and speaks volumes of your lack of concern of being made irrelevant next week by a timeshare company who has all the muscle to make you obsolete by month's end.



Regarding the refundable portion, why do it when the market does not demand it. For every one person that walks away from the deal due to concerns with refundable portion or appreciation of assets, there are multiple others that are willing to sign up and plunk half a mil down. 

It purely business. Its been six months since I joined and nine since I started looking at buying a membership. What I said before still holds true.

 If you like what's on the plate, buy it. If not, walk away from it. 'cause the DC industry model is working and they are not changing anything for you.


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## PerryM (Jun 6, 2007)

Bourne said:


> Regarding the refundable portion, why do it when the market does not demand it. For every one person that walks away from the deal due to concerns with refundable portion or appreciation of assets, there are multiple others that are willing to sign up and plunk half a mil down.
> 
> It purely business. Its been six months since I joined and nine since I started looking at buying a membership. What I said before still holds true.
> 
> If you like what's on the plate, buy it. If not, walk away from it. 'cause the DC industry model is working and they are not changing anything for you.




As long as the DC industry settles for folks who view the membership as a throw away investment they will not care about guaranteeing their guarantee.  However, if they want to get 10,000 members they are going to have to act like corporations that care about their customers concerns.

If Marriott offered a DC today I'd raise my price point to probably what they asked - I don't see Marriott going out of business with reckless business practices.  Many of these DC's have less than 100 customers and those folks view the membership fee as pocket change.

The DC industry needs to think of how they will survive if a Marriott enters the game and shoots for 500 condos and 5,000 members by the end of the quarter.  I doubt that Marriott will follow the current DC model - they will strive to show how they care about their customers with guarantees and bonds or deeds.

I just see the DC industry doing everything it can to invite a major player to decimate them.


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## Steamboat Bill (Jun 7, 2007)

I spoke with HCC yesterday regarding the bond issue and they siad every club is interested in this, but there are no companies offering this coverage.

The DCA (Destination Club Association) was formed to address the safety of member deposits. HCC is a founding member of the DCA and will be one of the first to be certified that they can refund member deposits.

Either way, there is still no 100% guarantee of the DC guarantee and may never be.

I would LOVE it if Marriott, Hyatt, Hilton, etc. enter the Destination Club industry.


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## Elsway (Jun 7, 2007)

PerryM said:


> But when you read the article in Wiki you aren't asked to check-off 3 DCs and then all 3 of them call you and the Helium Report gets a Bounty for your scalp.



False. As disclosed on the Helium Report website:

_Helium Report is an independent media venture and is not affiliated with any company listed in our directories. We do not receive compensation if you join a club or purchase a fraction._

You can access the Helium Report article on destination clubs without checking any of the boxes of the listed DCs.


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## PerryM (Jun 7, 2007)

Elsway said:


> False. As disclosed on the Helium Report website:
> 
> _Helium Report is an independent media venture and is not affiliated with any company listed in our directories. We do not receive compensation if you join a club or purchase a fraction._
> 
> You can access the Helium Report article on destination clubs without checking any of the boxes of the listed DCs.



I don't remember what I asked for 2 weeks ago from Helium but I had to check off 3 DC's, I believe, before I could see a report.  Sure enough the DCs called.

I'm guessing that the Helium Report get's paid by the DC industry - I sure didn't pay a penny.  I guess there was 1 column of advertising for a rotating ad - I don't know what they charge for that.

To me there is but one paramount issue that the DC industry ducks - security of my hard earned money that I entrusted to them.  The Helium Report should be Heralding this topic all the time.  In the long run it will be good for the DC industry.

Maybe I'm wrong, if so I humbly apologize.  If the folks at the Helium Report do this for free or make a buck or two from the ads I apologize for slamming them.  I do spend a lot of time dispensing free advice, maybe the Helium Report are guys after my own heart.

However, if I read their statement *"We do not receive compensation if you join a club or purchase a fraction"* I can read a $1 M loophole in there.


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## PerryM (Jun 7, 2007)

Steamboat Bill said:


> I spoke with HCC yesterday regarding the bond issue and they siad every club is interested in this, but there are no companies offering this coverage.
> 
> The DCA (Destination Club Association) was formed to address the safety of member deposits. HCC is a founding member of the DCA and will be one of the first to be certified that they can refund member deposits.
> 
> ...



I'd love to see Ritz Carlton step in and do this right.  They offer residences right now that match any DC.  They would have the name brand to instantly take over the DC industry.

Hopefully they would use the BelleHavens model or even better the WorldMark model of Points to just take over the transform the industry over one weekend.

P.S.
As easy as it is to speculate a major player taking on the DC industry, what would that do to the industry.  HCC is probably fine since it would not be in the same league but just about all the others would.

If Wyndham was thinking correctly it would come out with a full line of inexpensive to $5 M condos/homes and integrate it with a Point System.


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## travelguy (Jun 7, 2007)

PerryM said:


> The Helium Report is just the mouthpiece for the DC industry – they must make a bunch of money as their spokesman.
> 
> Wikipedia has an excellent article on DCs and you can add your wisdom to it if you wish.
> 
> Just thought you’d like to see a non-industry biased version of DC knowledge (besides TUG).



Perry,

I'm confused on your initial point.  You said that the Wiki article was a "Fantastic Resource" and it was old Helium Report stuff verbatim.  Yet you're bashing Helium, the info on their web site and their intent in your later posts.  Did I miss a connection you are trying to make?


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## PerryM (Jun 7, 2007)

travelguy said:


> Perry,
> 
> I'm confused on your initial point.  You said that the Wiki article was a "Fantastic Resource" and it was old Helium Report stuff verbatim.  Yet you're bashing Helium, the info on their web site and their intent in your later posts.  Did I miss a connection you are trying to make?



The Wiki article is independent of the DC industry.  Sure they copied some of the Helium Report's info to get going but folks can add their own experiences if they want.

Anyone of you owners could, in 15 seconds, add more knowledge to the Wiki site.  Try that on the Helium Report.  That's what I was getting to.

The Helium Report could add a Wiki section and a chat room - if either one is ever added to the Helium Report than I will be proven wrong in my conclusion that it is just a mouth piece for the DC industry.

Let's see.

P.S.
I have no reason to add to the Wiki site.  I'm not a member of a DC and the Wiki is really for folks with first hand knowledge.

P.P.S.
Maybe I should add my views to the Wiki - why not?


P.P.P.S
There, in 3 minutes I added my concerns for DCs to the Wiki article.  Someone let me know when I can add those to the Helium Report's site.


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## Steamboat Bill (Jun 7, 2007)

PerryM said:


> As easy as it is to speculate a major player taking on the DC industry, what would that do to the industry.  HCC is probably fine since it would not be in the same league but just about all the others would.



I believe that if ANY major hotel chain decides to enter the DC industry, this would be a major positive move for the entire industry. It would add instant credibility to Destination Clubs.

There is a HUGE amount of room for growth in the DC industry. There are still less than 5,000 DC members in the world!

Compare that to DVC, Marriott, Hyatt, Hilton, WM, FF, etc. and then compare the prices per night per room and it make sense that the DC prepresents a new paradigm in upscale travel.

Although, someone may think some of my posts (and other HCC members also) may lack objectivity, the simple fact is that we are happy DC members. I have yet to read one single post from any DC member (HCC or otherwise) that is unhappy with their decision to join a DC. Perhaps some of the T&H members are disapointed, but those problems have been resolved.

Now compare the complaints about the timeshare industry with the destination club industry, and you will quickly conclude that these properties are as different as night and day.

Also, do a search of my first few threads on the economics of joining a DC and you will find that joining a DC can be CHEAPER than buying an upscale timeshare.

Here is a brief example:

HCC Associate membership = $333 per night

HCC Affiliate membership = $296 per night

Ski week (Marriott SummitWatch / Mountainside or Westgate Park City) = $350 per night

Disney Vacation Club = $380 per night


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## travelguy (Jun 7, 2007)

*But they HAVE addressed the refundable portion!!!*



PerryM said:


> To the DC industry:
> *
> Why on earth you have not addressed the refundable portion of the membership fee is beyond me ... *



I cannot speak for the DC industry but I can speak about High Country Club since I have done due diligence and am a member.  As a result, I am happy to inform you that they have "addressed the refundable portion of the membership fee"!  

High Country Club is a founding member of the DCA (Destination Club Association).  The DCA has only a few members as not all DCs meet the steep financial requirements for membership.  One of the main purposes of the DCA is to assure DC members and potential members of the financial stability of the DCA member clubs.  One of the major financial tests required for DCA membership is an audited “Net Asset Test” to insure that the DC has the ability to refund member deposits from net liquidated assets should the need arise.  The DCA also has strict audit requirements for financial statements in addition to GAAP standards.

High Country Club has audited financial statements as required by the DCA and does meet the Net Asset Test which means that they have net asset levels greater than the refundable member deposits.

Now Perry, I realize that you'll have a problem with this and end-up shifting the target once again.  I'm not sure if there is anything a DC can do to keep you from sleepless nights worrying about your refundable membership deposit.  Actually, ER or Yellowstone may have a tuck-in service....


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## PerryM (Jun 7, 2007)

*My simple test...*



travelguy said:


> I cannot speak for the DC industry but I can speak about High Country Club since I have done due diligence and am a member.  As a result, I am happy to inform you that they have "addressed the refundable portion of the membership fee"!
> 
> High Country Club is a founding member of the DCA (Destination Club Association).  The DCA has only a few members as not all DCs meet the steep financial requirements for membership.  One of the main purposes of the DCA is to assure DC members and potential members of the financial stability of the DCA member clubs.  One of the major financial tests required for DCA membership is an audited “Net Asset Test” to insure that the DC has the ability to refund member deposits from net liquidated assets should the need arise.  The DCA also has strict audit requirements for financial statements in addition to GAAP standards.
> 
> ...



As an investor I get all kinds of stuff in the mail and eMail about all kinds of investment schemes.  I apply the same test to all of them:

*“Would I recommend this investment to my best friends?”*

I could not recommend DCs to any of my friends.  I have recommend timeshares for many to buy and even from the developer.

So until I can recommend a DC to a good friend, the DC industry will have to get along without my investment and the many friends that ask me about investments.


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## Bourne (Jun 7, 2007)

It is what it is.

I would recommend DCs to my friends but not timeshares in the same price range.


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## Steamboat Bill (Jun 7, 2007)

My Boca Raton friends LOVE Destination Clubs and won't even consider a timeshare (even the high-end ones).


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## PerryM (Jun 7, 2007)

*Not ready for prime time; yet...*

Here are the problems I have with the DC industry:

1)	There is no protection for their guaranteed refundable portion of their membership fee

2)	The membership fee is given to strangers so that their name appears on the deed to the condo/home

3)	The condos are 50% leveraged and that portion is owned by a lending institution 

4)	There are no deeds that can be attached to the membership fee

5)	There are NO DC laws to protect the member

6)	The industry standard of 3 in/1 out could prevent anyone leaving the DC in a meltdown

7) The industry is ready for a bloody consolidation as a heavy weight steps in and dominates the industry


I just don’t know how I could recommend, to a close friend, an investment with these glaring shortcomings.  A timeshare I understand and can recommend.

I just know that the above problems will be addressed one day by the DC industry itself or a new comer that will radically change the industry. That’s why I’m still interested and still advising folks that the DC industry is not quite ready for prime time; but the idea is just too good to be ignored by a Fortune 500 corporation ready to take on the industry.


Of course these are just my opinions – someone who has bought a DC has weighed the decisions and decided that the money they are turning over to the DC has passed the due diligence test for their style of investing.

Please don't think that I'm criticizing anyone here for their decision - I am not.


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## Bourne (Jun 7, 2007)

I agree that DC industry is not ready for prime time yet. 

The moot point is that by the time it is, the buy in price is 3-5X more than what it is now. 

The greater the risk the greater the reward. Like I said back in Jan, I do not want to be facing a 150K price tag if I wait for ALL core issues to be resolved/addressed to.


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## PerryM (Jun 7, 2007)

*Old ideas and new ones*



Bourne said:


> I agree that DC industry is not ready for prime time yet.
> 
> *The moot point is that by the time it is, the buy in price is 3-5X more than what it is now. *
> The greater the risk the greater the reward. Like I said back in Jan, I do not want to be facing a 150K price tag if I wait for ALL core issues to be resolved/addressed to.



I totally disagree.

A 100% ownership deed based DC can buy any priced condo/home.  There is no reason why one could not buy $500k condos with 10 owners per condo = $50,000 ownership fee.

That same DC could then buy $2 M condos with $200k membership fees and if the DC is Point System oriented the members just buy the number of Points they need.  I could buy a $50k ownership, bank my points forward 1 year and then next year borrow Points from the future year and stay at the $2 M condo at Christmas.

That I believe is the future of the DC industry.  Sounds like some old timeshare folks forced the old Week system on the industry.

Right now DCs are NOT fractional real estate - they are just the old Beta Max video rental stores of 20 years ago.  The first one I belonged to charged $150 to become a member and $10 per tape I think to rent.  There was no ownership there or now in the DC industry (BellHavens excluded).

P.S.
Just because the current DC model has the investors plundering the membership fees does not mean that they can continue this model as baby boomers by the thousands want in on DCs.


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## Bourne (Jun 7, 2007)

The model will evolve but not in the fashion you describe. 

It will never be an ownership model. Because, that version already exists in form of company managed fractional residences. FS, Marriott etc. The problem with the fractional model is ease of use. i.e. flexibility of destinations.  

*The future of DC model is not at the lower level. The vaccum exists in the $3-4 mil property range where fractionals did not fit the bill due to lack of flexibility.*

HCC carved out a niche but will always be upstaged by the likes of ER and UR. Reason being, timeshares are a vaible alternative to companies like HCC/PE at a lower quality level. 

The Marriotts, Starwoods and Hiltons of the world can only go after the market that HCC/PE have cornered. It is profitible for them in the timeshare industry than in DCs.


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## PerryM (Jun 7, 2007)

*The new Marriott DC*

I see no reason why Marriott could not just start to take 10% of the available inventory in an active Marriott sales resort and make them into a DC.

Instead of 50 owners per condo a DC only has 10.  You need 1/5 the sales cost – folks are marching thru the door daily anyway.

Assume that the average Marriott in Florida, for example, has a real estate appreciation of $400k.  Marriott needs $1.6 M in timeshare sales to sell that one condo – a lot of work.  That means the average weeks sells for $32k.

A DC model could be sold by the same sales reps but instead of selling ONE week at the ONE Marriott they now sell a DC version of ALL new Marriotts.  They might only need $1 M in sales to do this per condo.  So for $100k membership fee for 10 owners they sell a DC which are backed up with deeds.

That DC member now has access to 5 weeks at 20 Marriotts – this is day one.

The villa is NOT a timeshare - it can be sold as a whole ownership unit if the DC determines it.  It will appreciate in value like surrounding real estate - maybe not as much but it will reflect whole ownership virtues.


I would be one of their first members.


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## Steamboat Bill (Jun 8, 2007)

PerryM said:


> I see no reason why Marriott could not just start to take 10% of the available inventory in an active Marriott sales resort and make them into a DC.
> 
> Instead of 50 owners per condo a DC only has 10.  You need 1/5 the sales cost – folks are marching thru the door daily anyway.
> 
> ...



Perhaps you should pitch Marriott this in a business plan and only ask for a free membership. I would then join as member #2. I would also like to see more 3-4 bedroom units in the Marriott system.


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## smbrannan (Jun 8, 2007)

PerryM said:


> Here are the problems I have with the DC industry:
> 
> 1)    There is no protection for their guaranteed refundable portion of their membership fee
> 
> ...



I'm with you PerryM (Hey - there's something you don't read very often.)

Except for the Bellehaven equity model, DC's are based on their members paying a non-refundable initiation fee and making an interest free loan to the DC when they sign up.  The loan is subordinate to mortgages on the property, and repayment is dependent on the club continuing to attract new members.

I'm still considering my options, but this seems too big a bet for me.

PS: I actually think Club Intrawest is a DC wannabee.  The members jointly own all the properties (through a trust), and use a point system to negotiate usage among themselves.   At present, it doesn't feel like a DC because there are far too many members per property, and management of the club is way too opaque.  But it doesn't have to be that way.

PPS: Bellehavens properties are way too big for a lot of folks, and there aren't enough ski properties.  So despite its apparently solid membership model, it has a couple of strikes against it in my books.


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## Steamboat Bill (Jun 8, 2007)

smbrannan said:


> Except for the Bellehaven equity model, DC's are based on their members paying a non-refundable initiation fee and making an interest free loan to the DC when they sign up.  The loan is subordinate to mortgages on the property, and repayment is dependent on the club continuing to attract new members.



FYI - most DC's offer 80% refundable membership deposits.

FYI part 2 - perhaps it is time to STOP comparing a DC to a deeded real estate like a timeshare, fractional, etc. and START to compare them to joining a golf club. I have TONS of friends that are members of private golf clubs that cost between $50,000 and $350,000 to join and then they have to pay $5-50k per year to keep it going. In addition, there are no-tipping charges, food allowances, party surcharges, vallet parking fees, etc.

No matter....I am already packing my bags for my first visit to Turks and Caisos to stay at the beachfront HCC property on Saturday.


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## puffpuff (Jun 8, 2007)

Have fun in T and C.


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## smbrannan (Jun 8, 2007)

Steamboat Bill said:


> FYI - most DC's offer 80% refundable membership deposits.



Exactly - that's an interest free loan, as far as I can see.



Steamboat Bill said:


> FYI part 2 - perhaps it is time to STOP comparing a DC to a deeded real estate like a timeshare, fractional, etc. and START to compare them to joining a golf club. I have TONS of friends that are members of private golf clubs that cost between $50,000 and $350,000 to join and then they have to pay $5-50k per year to keep it going. In addition, there are no-tipping charges, food allowances, party surcharges, vallet parking fees, etc.



Maybe - but then the DC industry should stop marketing their product as if it provides good value compared to other real estate investments, like 2nd home ownership.  If it is a pure indulgence, then why not sell it that way?


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## PerryM (Jun 8, 2007)

*Competition - it's a good thing*

I want my cake and I’d like to eat it too…

If BelleHavens didn’t exist I agree with Bill that the DC model was like the Golf Club model (I like the nursing home model myself) where the member loans the Club the initiation fee and gets back a portion at the end.

BelleHavens, however, is the Golf Club model where the members do become owners and participate in real estate appreciation of the Club while members.

If BelleHavens can do it there is only ONE reason the rest don’t do it – greed.

This also means that the equity appreciation model and ownership model do work – the investors of all the other clubs are making a killing and that money belongs to the folks who actually took the risk – the members.  The investors take NO risk, or so small a risk that it doesn’t even statistically show up.

That is all fine and dandy – however it shows a corporation who wants to focus on market share that they can easily assume the mantle of leader in this tiny, start up, industry in short order.  This could be a disaster for the current DC folks.

Imagine Marriott doing this right – 80% participation in real estate appreciation AND deeds to backup satisfy investor’s needs for safety.  Once a major player enters the arena and starts to spend big bucks pointing out this glaring weakness in all the DCs but BelleHavens, there could easily be a stampede to exit the current DCs and join Marriott.

Or the hit piece by the Drive-By Media – does the same thing.

Bill, have a great time.


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## PerryM (Jun 8, 2007)

*A high end Orbitz*



smbrannan said:


> Exactly - that's an interest free loan, as far as I can see.
> 
> 
> 
> Maybe - but then *the DC industry should stop marketing their product as if it provides good value compared to other real estate investments, like 2nd home ownership*.  If it is a pure indulgence, then why not sell it that way?



Exactly!!!!!

I just quickly looked at a bunch of DC web sites - the one theme that stands out is:

*"An alternative to Second Home Ownership"​*
This, of course, is a false statement!  It is NOT an alternative to owning a second home - only BelleHavens is, the rest are rental agencies.


The entire DC industry is built on deceptions:

1) An alternative to second home ownership
2) Safety of refundable portion of deposit
3) Ease of exiting the Club
4) High leveraging of the real estate is not mentioned

But the one they need to immediately stop pretending is the alternative to second home ownership.

I did notice that many have stopped using the exact words "Alternative to owning a second home" and use phrases like "Vacation home ownership".  I'm guessing those DCs realize that there are truth in advertising laws that can be applied to their web sites.

P.S.
I have the same beef with the timeshare world.  When the salesrep says:
"See that $2 M condo over there, ours is better"
"That condo over there appreciated 25% last year alone"

This is the same as the DC industry implying that a DC is an alternative to a second home - the two aren't even close.

They need to compare themselves to a high end Orbitz.


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## Elsway (Jun 8, 2007)

Joining a destination club is an alternative to owning a second home.

Saying that something is an "alternative" does not imply that it is "equivalent".

The DC industry is marketing to a segment of the population which has a propensity to own a vacation home.  Owning a vacation home entails costs and benefits and risks.  Joining a DC entails costs and benefits and risks.  I see nothing wrong with the DC industry inviting people to compare the alternatives - DCs offer favorable value, IMO.

Make a 25% down payment on a $2 million dollar vacation home.  If your real estate investment declines by 10%, you have lost $200K which equates to 40% of your investment.  A 20% declines, and you have lost 80%.  Anybody who thinks that second home ownership is risk free is not paying attention to the current state of the residential real estate market.


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## Steamboat Bill (Jun 8, 2007)

smbrannan said:


> Maybe - but then the DC industry should stop marketing their product as if it provides good value compared to other real estate investments, like 2nd home ownership.  If it is a pure indulgence, then why not sell it that way?



I will not disagree with that statement in principal, however, as someone who has owned several different vacation homes....I am glad I sold most of them and can now 100% enjoy my vacation travels.

For me, the concept of a vacation home as an investment was a fantastic pie in the sky concept and it actually worked. The downsides are the hassles of ownership and being locked into one location. I decided to take my profits and run...for a while I stayed at places like the Ritz, Fairmont, Four Seasons, etc and then I began to get upset with spending $500-800 per night for a samll room, so I looked for alternatives like home rentals.

Before 2001, I thought anyone who bought a timeshare was a sucker, until my cousin invited me to his BWV at DVC and I was instantly hooked. Then I bought 1,000 DVC points, Westgate Park City Ski week, Marriott Platinum, and even rented a few timeshares off redweek. I found DISboards, Timeshareforums, and TUG...I was now 100% impressed with the higher end timeshares.

When I first heard about destination clubs and HCC in particular (thanks to PerryM), I thought this may make sense for me and my family. After spending time with reviewing all the web sites and different DCs, I really wanted to join Exclusive Resorts, but thought they were actually too high end and I didn't want my children to EXPECT a $3-4m property when we go on vaction. I was extremely impressed with HCC as they really wanted my business and was very open with their disclosures. I liked their locations and choices of properties.

The facts are crystal clear to me....Destination Clubs offer me the BEST vacation experience and are a "pure indulgence." I realize that there are some growing pains in this industry but the cons do not outweigh the pros.

I will post mini reviews of my HCC Turks and Caicos experience as I have free wireless interent access there.


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## PerryM (Jun 8, 2007)

*An alternative to Orbitz*



Elsway said:


> Joining a destination club is an alternative to owning a second home.
> 
> *Saying that something is an "alternative" does not imply that it is "equivalent".*
> 
> ...




I agree with yourstatement.  DCs are an alternative to renting is a more accurate statement.

Again it's the implied assumption of ownership that is what I am opposed to.  As I learned more about DCs it became obvious to me that I was not buying a version of a second home - I was buying into a version of Orbitz.  One that wants big bucks up front, no security for my money deposited, and no real guarantee that I can exit the club.

As long as the DC says:

*An alternative to Orbitz*​
I have no problem with that marketing slogan.


I guess what really has me riled up about the DC industry is that only 1 out of the 30 or so DCs is really an alternative to a second home.  The rest are rental agents posing as something they are not.  They are building an industry based upon false impressions - that sends up red flags to this investor.

Can folks get value out of the money they lend to the DC - sure.  Is it a save investment - NO in my opinion.  I can't recommend any DC, even BelleHavens, since it too could get sucked into a maelstrom.


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## travelguy (Jun 8, 2007)

Elsway said:


> Joining a destination club is an alternative to owning a second home.
> 
> Saying that something is an "alternative" does not imply that it is "equivalent".
> 
> ...



Thank you for saying this!

My personal view is that I already own too much real estate and don't need a "travel" property as another real estate "investment".  Let's face it, real estate ownership is a pain and risky even if it is a good investment.  My commercial properties are all very long term leases with solid clients at triple net leases requiring no maintenance or supervision by me ..... and the properties are STILL A PAIN although they have great ROI!

I don't want the hassle of another property far away just so I can use it every now and then.  I also don't want to pay a lot more for a DC membership just so I can have PART of the equity appreciation after someone I don't even know manages the investment and properties for me.  Instead of paying the exorbitant extra membership fee of a DC w/ equity, I'll pocket the extra membership fee and make my own investments if you please.

So my personal choice was simple:
1. No "travel" property ownership due to the hassle and risk.
2. No DC w/ Equity appreciation due to the extra cost and lack of control.
3. Lowest membership and annual dues cost for the properties that meet my travel wants, need and desires.
4. Business plan that provides financial transparency for my evaluation and best risk/reward WITH acceptable risk.

My choice was High Country Club.


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## PerryM (Jun 8, 2007)

*Mud huts facing a monsoon season*

I truly believe the DC is suffering thru an identify crisis.

*Their model (excluding BelleHavens) is really a rental agency.*  It is a twist to the old nursing home model.

In a retirement village/nursing home you pay a lump sum deposit up front and make monthly rental payments.  The DC industry has morphed into a transient version of the nursing home model.  You can rent many units in many locations with a DC.  The nursing home takes your deposit and invests it.

No one in the nursing home industry implies that they offer an alternative to a second home.  Their definition is written into many state laws.

However, the nursing home does not go wild and use the deposit money to speculate on future locations by leveraging every penny on new facilities.  There are many of state laws that regulate the nursing home industry.


My initial joy of finding HCC was quickly dampened as I realized how precipitously unstable the entire industry has been building clubs with all the stability of mud huts with monsoon season inevitably arriving at some point.

If someone can show me how my analysis is flawed I’d be glad to go over my assertions one by one and debate them.  I welcome another prospective as to the conclusions I draw from what I see.


I almost feel like some engineers shouting "You want to rebuild New Orleans  80' below sea level again?"


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## saluki (Jun 8, 2007)

Perry-

I enjoy reading your musings but the nursing home analogy is really a stretch. You are comparing a primary residence situation with a high-degree of "members" leaving (for obvious reasons) to a vacation club.

There is clearly some level of risk involved by joining a DC, but it all comes down to what each individual is comfortable with. That case has been well spelled out by travelguy & others. I personally am considering HCC (pending a discussion with my wife) but can see where others would be more comfortable waiting for this relatively new industry to evolve a bit. Time may show that the "early adopters" got the best value (and took a lot of great trips along the way) but we shall see. Personally, the relatively "affordable" situation currently at HCC mitigates the risk involved quite a bit.


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## Steamboat Bill (Jun 8, 2007)

We have debated this topic to death.

I agree that DC's should probably advertise themselves as an alternative to VRBO, Orbitz, renting, etc. and more like a "club" and NOT an investment. But, the DC properties are so nice that people like me will probably NEVER buy another vacation home as this offers us a much better alternative. Thus, for me, a DC is truly an alternative to owning a second home.

Last week I visited a friend in Mountain Air (Burnsville) North Carolina and this placed was awesome. Private gated golf community on a mountain top with a private airstrip, clubhouse, tennis, camp, security, incredible views and the properties are in the $500k-2m range. He spends his summers there and most major holidays. He and his family are happy and I (as a guest) was also happy. However, he is LOCKED into this same location for his vacations and he rarely travels to other destinations. For him that is fine. 

Our family likes variety and this is what a DC offers us. I joined AAA and Costco to save money (not as a profit investment) and I joined HCC for some of the same reasons. I think HCC is very good now, but will be GREAT in 1-2 years as they continue to grow and add properties. I am speculating on their success and loking in a low cost per night for as long as I am a member.

Even though I really like timeshares, I have found some limitations: small rooms for a party of 6-8 people, hassles of trading with II, lack of "wow" factor, increasing price per night for high end properties, having to plan 365 days in advance to get a hot week, etc. A Destination Club offers me a "better service" and less hassles. 

I can see a day in the future when I sell all of my timeshares and buy another destination club membership.

I think Doug's post #40 of his four reasons for joinig HCC are the same as mine. Remember this is called High Country Club....not High Country Investment Opportunity.


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## PerryM (Jun 8, 2007)

saluki said:


> Perry-
> 
> I enjoy reading your musings but the nursing home analogy is really a stretch. You are comparing a primary residence situation with a high-degree of "members" leaving (for obvious reasons) to a vacation club.
> 
> There is clearly some level of risk involved by joining a DC, but it all comes down to what each individual is comfortable with. That case has been well spelled out by travelguy & others. I personally am considering HCC (pending a discussion with my wife) but can see where others would be more comfortable waiting for this relatively new industry to evolve a bit. Time may show that the "early adopters" got the best value (and took a lot of great trips along the way) but we shall see. Personally, the relatively "affordable" situation currently at HCC mitigates the risk involved quite a bit.




I totally understand your position and you've weighed the risk/reward ratio and have picked a price point you are comfortable with.  I have no problems when someone does due diligence and makes a decision.  I have not and will not criticize anyone here - you all made decisions that fit your risk/reward profile and I am in no position to tell you anything.

I really am shouting at the DC industry.  I don't know if those folks have time to do anything but run to the bank each day.  On the off chance that they read this section of TUG I am voicing reasons why I have not bought - yet.

I fully intend to buy some day when the right risk/reward level generates a price point that meets one of their membership levels.  I love the BelleHaven's version of a DC.  I'm just scared that they could get washed away if the levy breaks holding out reality in the land of DCs.


I agree the nursing home analogy is weak - I, frankly, can't come up with a better analogy.  The Beta Max video rental store of 20 years ago is close.

P.S.
I don't know if folks here remember the huge clash of Beta Max format and VHS format.  For a while our stores in St. Louis carried the same video twice - one in each format.  Eventually the Beta Max marched off into the sunset.  (Even though they were twice as big in store footage)  This clash of formats is happening in the DC market right now.  Who will win out?  Will it be BelleHavens or the rental model?  I'm hoping for the BelleHavens format myself.


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## Elsway (Jun 8, 2007)

Currently:  The destination club promises the members that their assets (deposits) are protected.  This promise is backed by an unsupported claim that the club's net asset value exceeds the amount needed to refund all membership deposits at the promised refund rate.

Currently:  The DC ensures an orderly liquidation (in the worst case scenario) by enforcing a gate whereby membership resignations are honored on a first come first served basis, but only as new members join the club.  If, at any time, 20% of members are on the resignation list the club polls all members who must decide if the club should be liquidated (a liquidation occurrs if 75% of the members vote in favor).

Okay:  This model is not perfect, but its flaws are addressable.

1)  The club needs to provide ongoing documented/audited evidence that net assets exceed the refundable portion of of membership deposits.

2)  Equity investors can only take dividends from the club if net asset coverage reaches a certain (high level).  For example:  no dividends unless/until net assets exceed liabilities by 50%.  This will ensure that the club's NAV fluctuates in a range of 100% to 150%.

3)  The club pledges to maintain a debt to property value ratio of less than 25%.

4)  There are merger provisions which give each member the option to redeem their membership in the event of a change of control or merger.

So I ask:  How can this club fail?  And how badly can members be impaired if the club were to fail?


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## PerryM (Jun 8, 2007)

*Living beyond our means...*



Elsway said:


> Currently:  The destination club promises the members that their assets (deposits) are protected.  This promise is backed by an unsupported claim that the club's net asset value exceeds the amount needed to refund all membership deposits at the promised refund rate.
> 
> Currently:  The DC ensures an orderly liquidation (in the worst case scenario) by enforcing a gate whereby membership resignations are honored on a first come first served basis, but only as new members join the club.  If, at any time, 20% of members are on the resignation list the club polls all members who must decide if the club should be liquidated (a liquidation occurrs if 75% of the members vote in favor).
> 
> ...




I don’t pretend to be a CPA.  I can only throw out some scenarios that I can dream up:

1)	The founders sell the residences and retire to Canada

2)	The members decide to liquidate the club and the $2 M condos sell for $1.5 M and the bank sucks up all remaining cash

3)	A murder takes place in the DC condo and the spotlight is turned on and sales dries up

4)	60% of the members want out and 40% don’t – the 3 in/1 out prevents anyone from getting out


All of these are guesses.  I’d rather have 100% of the DC in cash and not worry.

Part of the problem I see for the DC industry is that the members and founders want to live way beyond their means.

Highly leveraging the properties allows the founders to charge higher membership fees and the members to live in more luxury – put off to tomorrow the cost of ownership to the next generation of DC member.

I don’t doubt that many/most/all DCs are run by honorable men and women – I’m not suggesting that what I can cook up will happen.  But if I can cook up these schemes then others can actually do them.

Unless pressured by lower sales or competitive pressures the DC industry is not going to change its business plan.


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## Elsway (Jun 8, 2007)

PerryM said:


> > I don’t pretend to be a CPA.  I can only throw out some scenarios that I can dream up:
> 
> 
> 
> ...


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## smbrannan (Jun 8, 2007)

Elsway said:


> Won't happen - I incorporated a quarterly appraisal report, an asset coverage test and a debt incurrence restriction.  Condos which are assessed at $2mm should not sell for 1.5mm - and even if they did, bank debt is limited to 25% of property values - so members would recover a minimum of 50% of their deposits.



Elsway - which DC only uses 25% leverage?  I was under the impression that 50% or more was the norm.


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## Elsway (Jun 8, 2007)

smbrannan said:


> Elsway - which DC only uses 25% leverage?  I was under the impression that 50% or more was the norm.



You may have missed my point:  I was proposing a way in which the DC industry could address our concerns regarding deposit security.  One of my proposals is that they limit debt to 25% of asset value.

Each club has their own debt ratios.  Bellehavens uses zero debt.  Others use as much as 50%.  I think 25% is an appropriate level - so this is what I have proposed.  I would also capitalize operating leases in determining the amount of debt.



> Currently: The destination club promises the members that their assets (deposits) are protected. This promise is backed by an unsupported claim that the club's net asset value exceeds the amount needed to refund all membership deposits at the promised refund rate.
> 
> Currently: The DC ensures an orderly liquidation (in the worst case scenario) by enforcing a gate whereby membership resignations are honored on a first come first served basis, but only as new members join the club. If, at any time, 20% of members are on the resignation list the club polls all members who must decide if the club should be liquidated (a liquidation occurrs if 75% of the members vote in favor).
> 
> ...


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## PerryM (Jun 8, 2007)

Elsway said:


> PerryM said:
> 
> 
> > I am not a CPA, but I have an MBA in Finance and I have 20 years of institutional investing experience, including significant experience with bankrupt companies.
> ...


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## smbrannan (Jun 8, 2007)

Elsway said:


> You may have missed my point:  I was proposing a way in which the DC industry could address our concerns regarding deposit security.  One of my proposals is that they limit debt to 25% of asset value.
> 
> Each club has their own debt ratios.  Bellehavens uses zero debt.  Others use as much as 50%.  I think 25% is an appropriate level - so this is what I have proposed.  I would also capitalize operating leases in determining the amount of debt.



You are correct, I missed the transition from "what's out there" to "what we'd like to be out there".

I could easily live with 25% leverage.

But why does there have to be a member deposit at all?  If this is an alternative to VRBO, Orbitz etc. why not jut have a 10 or 20 year agreement to pay annual dues in exchange for access rights to the DC's properties.  How the DC finances the properties is their business.

If the club goes bankrupt, each member's obligation to pay further dues is extinguished. 

It's the upfront payment that makes this feel like an investment.  Do away with that, and it becomes more obvious that a DC is just a long term contract to provide access to vacation homes.  Why should the "member" have to provide financing to the DC?


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## Steamboat Bill (Jun 8, 2007)

smbrannan said:


> I could easily live with 25% leverage.



Do you know what the average timeshare is leveraged?


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## hipslo (Jun 8, 2007)

Steamboat Bill said:


> Do you know what the average timeshare is leveraged?



That's by the choice of each individual owner - the underlying properties are typically debt free, once the resort reaches a certain point in the sales process, arent they?  So while any particular TS owner has to worry about paying their own loan, they typically dont need to worry about the underlying properties going into foreclosure because the loan on the underlying property goes into default.  Sort of like the difference between condos and co ops.


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## smbrannan (Jun 8, 2007)

Steamboat Bill said:


> Do you know what the average timeshare is leveraged?



Don't know about the average timeshare, but Club Intrawest's assets are debt free, and so is my interest in it.

Aren't you supposed to be enjoying yourself in Turks and Caicos?  ;-)


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## Steamboat Bill (Jun 8, 2007)

smbrannan said:


> Aren't you supposed to be enjoying yourself in Turks and Caicos?  ;-)



My plane leaves Florida at 1pm on Saturday.


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## smbrannan (Jun 8, 2007)

Steamboat Bill said:


> My plane leaves Florida at 1pm on Saturday.



Have a great time.  We spent a few days at Parrot Cay (a bit more remote than Grace Bay) a couple years ago and found it thoroughly relaxing.


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## Elsway (Jun 9, 2007)

smbrannan said:


> It's the upfront payment that makes this feel like an investment.  Do away with that, and it becomes more obvious that a DC is just a long term contract to provide access to vacation homes.  Why should the "member" have to provide financing to the DC?



If destination clubs did not require an upfront deposit it would have to make a significant equity investment to purchase the properties and it would have to compensate for its carrying costs by charging much higher dues.  

Today, you can join Belle Havens with a $200,000 deposit and annual dues of $17,500 for 30 days.  Belle Havens is debt free, so your annual dues do not include a financing component.  If Belle Havens wanted to change their business model to eliminate membership deposits, they could borrow against the homes in their portfolio and return all of the deposits to members.  BH would then raise their annual dues to cover the financing (interest) cost on the debt and to provide an adequate return to equity holders.  

Assume BH has 100 members (who have each deposited $200,000) and 10 homes (each worth $2 million).   The company could lever its properties by borrowing 90% ($180 million in total) and returning the money to members.  Assuming that interest expense is 6%, the company would incur interest expense of $10.8 million annually.  The 100 members would need to foot the bill for the interest expense - which amounts to $108,000 per member, per year.  So, your annual dues will increase from $17,500 to about $125,000.  Given 30 nights of property useage, your cost per night has gone up to about $4200 (from $1200 under the current plan).

So, do you think you are better off by making a $200,000 deposit and paying $17,500 per year - or are you better off making no deposit and renting the homes from BH for $4,200 per night?


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## PA- (Jun 9, 2007)

PerryM said:


> The Helium Report is just the mouthpiece for the DC industry – they must make a bunch of money as their spokesman.
> 
> Wikipedia has an excellent article on DCs and you can add your wisdom to it if you wish.
> 
> Just thought you’d like to see a non-industry biased version of DC knowledge (besides TUG).



This article doesn't distinguish between a timeshare and a Destination Club.  Is there any difference?  If so, what is the difference?  If you look at the Hyatt or Ritz program, the differences with some of these so called Destination Clubs seems negligible.


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## puffpuff (Jun 9, 2007)

Elsway said:


> If destination clubs did not require an upfront deposit it would have to make a significant equity investment to purchase the properties and it would have to compensate for its carrying costs by charging much higher dues.
> 
> Today, you can join Belle Havens with a $200,000 deposit and annual dues of $17,500 for 30 days.  Belle Havens is debt free, so your annual dues do not include a financing component.  If Belle Havens wanted to change their business model to eliminate membership deposits, they could borrow against the homes in their portfolio and return all of the deposits to members.  BH would then raise their annual dues to cover the financing (interest) cost on the debt and to provide an adequate return to equity holders.
> 
> ...


the biggest problem with existing BH equity model is that while the properties are debt free, the MF remains high and similar to those clubs that are 50% leveraged. The money trail inevitably lead to one conclusion - a large portion of the MF geos to pay  executives for running the operations. I could be wrong, but no one so far has been able to explain by the MF is so high when the properteis are debt free.


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## NeilGoBlue (Jun 9, 2007)

puffpuff said:


> the biggest problem with existing BH equity model is that while the properties are debt free, the MF remains high and similar to those clubs that are 50% leveraged. The money trail inevitably lead to one conclusion - a large portion of the MF geos to pay  executives for running the operations. I could be wrong, but no one so far has been able to explain by the MF is so high when the properteis are debt free.



You are correct, however, during my due diligence, Bellehavens was the only club that was operating in the black for the year 2006.  And this includes ER!

One of the biggest concerns for me was that all the clubs were in the red last year except for BH!

I like the idea that BH can make money on an on going basis.  This gives me a cushion so that if the DC industry implodes, or BH begins to struggle and can't get additional members down the road, the MGMT company can still make money and operate the 15-25 homes.  

I think the fact that they make money with so few members is a good thing.

(of course the negative is that there is a higher member to home ratio than in other clubs)


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## puffpuff (Jun 9, 2007)

NeilGoBlue said:


> You are correct, however, during my due diligence, Bellehavens was the only club that was operating in the black for the year 2006.  And this includes ER!
> 
> One of the biggest concerns for me was that all the clubs were in the red last year except for BH!
> 
> ...


My guess is that the  MF for a 100% debt free property model like BH should be about 40% less than what BH is currently  charging. A small part of this goes to contigency fund, and the majority of it goes to the management company. The cost of keeping a debt free 2,000,0000 property well maintained is under 3.5 % of house value per year.( ifyou own it yourself, it comes out to 2% by national average)  This comes out to $6000 per month. Current MF is 17000 for 30 days usage. The difference  is  $11000 . Say 20% of this goes to a contigency, so abuot 80%  $9000  goes to the pocket of the management company and never comes back out and does not enhance the security of the portfolio. 

I have a hard time reconciling why the management deserve such a large paycheck everymonth beyond services rendered . Dont get me wrong, people should be paid for what they do.


Ultimate Resort (UR) charges $ 175,000 and MF of $14500 for 27 days, so the cost per night is very close. At least I know that a 40% of the MF goes to service debt ( assume 50% leveraged )  whcih will pay down debt with time and enhance "equity" of the club and make it stronger. Since members do not particpate in the equity in UR, there is ultimately no benefit in equity participation for members in UR other than as the number of properteis increases, the membership goes up and one gets 80% of the then current membership fee on exit. For BH, members are over paying the management now and on an ongoing basis in return for the management to "forgo" the equity appreciation of the propertites in the future. For the management , they earn a permanant annuity income stream which is used to feed the private equity that finances the purchases in exchange for potential appreciation which is hard to predict. 

I am not sure which is better, and whether my assumptions are correct.  I am considering membership in BH vs. Ultimate Resort at this time, and I am not trying to knock BH.  I am sure you have gone thru the numbers and make a logical and intelligent decision.  Perhaps I have a mental block on this matter and would appreciate any words of wisdom from a different perspective.


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## NeilGoBlue (Jun 9, 2007)

puffpuff said:


> My guess is that the  MF for a 100% debt free property model like BH should be about 40% less than what BH is currently  charging. A small part of this goes to contigency fund, and the majority of it goes to the management company. The cost of keeping a debt free 2,000,0000 property well maintained is under 3.5 % of house value per year.( ifyou own it yourself, it comes out to 2% by national average)  This comes out to $6000 per month. Current MF is 17000 for 30 days usage. The difference  is  $11000 . Say 20% of this goes to a contigency, so abuot 80%  $9000  goes to the pocket of the management company and never comes back out and does not enhance the security of the portfolio.
> 
> I have a hard time reconciling why the management deserve such a large paycheck everymonth beyond services rendered . Dont get me wrong, people should be paid for what they do.
> 
> ...



I looked very closely at UR before joining BH.  The only thing I can share with you is that what you think is a negative, I think is a positive.  The fact that BH is making money with only 100 members (and only about 60 for 2006), to me is a plus.  Most of the other clubs are losing money on the operational side while they build the business.  If the business doesn't build, then there is a huge problem.  They will either have to cut expenses or raise MF.

As a side note, I'd be interested in why you'd choose UR over BH from a non financial standpoint.. i.e comparing the homes and the services.  When I compare the lower tier homes from UR, they seemed to me to be substantially inferior to BH. (tho the selection is better)


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## puffpuff (Jun 9, 2007)

BH is a step up on properties vs UR. There is no question about it. Their UR Elite is a step up from BH.  Services are essentially a tie. 

I am thinking about the UR Platinum where the fee is 215,000 and MF is 22000, but you get 50 days so the cost per day comes down significantly at  about 30% less than either BH or UR silver at 30 days usage level . . At the 50 night usage level with the discounted cost per night relative to BH , I consider both clubs a tie. ie. you can more nights at UR while BH offer better properties.  

UR does offer more breadth which  BH will eventually catch up. 

For BH ,  The management has no down side at all. First, they have a built in annuity stream of income that is assured regardless of how they perform. If the membership drive does not meet goals  on time, their cost of capital goes up and members have to pay their private equity funidng an ever increasing amount to "transfer" the property ownership to the members and  the members are paying for it, not the management. So the members do not have a lock in price on cost of property.   If the indusry implode, the properties are remortage and you are right, the mf would go up dramatically because now members have to service debt on property plus management annuity. It potentially can be a  double whammy. Members are the ones that are holding the bag, so to say, if it ever comes to that. The upside to managtement is MF annuity play ,and real-eastate component play is not there. 

With non-equity based like UR, management have to perform  because their own success is  based on building a real-eatate play over time and not so much on recurrent annuity income. . The pressure  of management to perform for their own sake in UR type club is  a lot higher, and of course, the reward , because of the leverage on real estate, is also higher. 

I am not sure which is safer at the end of the day. BH defintely has a place in the industry. You are right, what you see as safety to me is risky. The term "equity" has a lot of appeal for any member, but I am not very sure it really has a lot of meat behind it. 

To me, joining DC is an expense first. I think most clubs will do well if they dont go overboard on promises such as T and H did. The equity will grow over time , and that can cushion a bit of  managment mishap and industry slowdown. 

As far as safety is concern from 1-10 with 10  being the most risk, I see strong non-equity clubs such as ER and UR at 7, and BH very close. I am not sure I buy the idea that equity clubs are a lot safer ( say a rating of 2-3) vs non equity clubs.   How do you see it??


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## NeilGoBlue (Jun 9, 2007)

puffpuff said:


> For BH ,  The management has no down side at all. First, they have a built in annuity stream of income that is assured regardless of how they perform. If the membership drive does not meet goals  on time, their cost of capital goes up and members have to pay their private equity funidng an ever increasing amount to "transfer" the property ownership to the members and  the members are paying for it, not the management. So the members do not have a lock in price on cost of property.   If the indusry implode, the properties are remortage and you are right, the mf would go up dramatically because now members have to service debt on property plus management annuity. It potentially can be a  double whammy. Members are the ones that are holding the bag, so to say, if it ever comes to that. The upside to managtement is MF annuity play ,and real-eastate component play is not there.



I don't think your scenario for BH would be accurate if the current business model doesn't work.  Let's take the most likely scenario. 

Bellehavens grows to about 150 members and 15 free and clear properties and then for whatever reason, membership stalls.  Several things could happen.

1) there could be a run for the exits, but with no new members coming in members can't get out of the club and a 'wind down' scenario takes place as outlined in the membership agreement.  The homes are sold off, management takes a 10% fee and the members get the rest.  Depending on when the member joined would dictate the % of their deposit that they would get back.

2) Most of the existing members stay in the club, 25% want out, and over time properties are sold off to pay the members that want to exit.  So, in this case the members would have still have asset protection, but the vacation destinations would be shrinking.

The one thing that can't happen is Bellehavens (the club) taking on debt.  It's explicity forbidden in the membership agreement and I think it takes a vote of 75% of the members to change the agreement.

So, I think my realistic downside is I lose 20% of my investment or I have membership in a club with only 10 properties.  I can live with either scenario.  The only real way I could lose more than 30% is if the real estate market crashes or through some sort of fraud.  The destination market crashing doesn't hurt me too much with all the properties owned free and clear. (especially if it goes strong for a couple more years)


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## puffpuff (Jun 10, 2007)

I have not reviewed the memebrship agreement, but going by the 10% liquidation fee charged in the worse case senerio, I agree with you that the downside is limited to your 20% and in the worse case , 30%.  

All  members who join T and H at $ 450,000 prior to bankruptcy and trasnferred to Ultimate now has the equivalent of Ultimate Resort Elite Silver member ( they were given a UR elite Bronze equivalent on transfer  and a $70,000 upgrade credit) that has market value of #300,000. Members can get the 300,000 back if they leave the club after 7 years stay from now.  
UR resort picked up the properties at 35% discount and memebrs transfer over take a 35% haircut. 

I think your worse case senerio is quite realistic from my vantage point. 

Do you think UR down side risk is larger than 35% going forward? And do you think the membership fee will go up faster in the case of BH vs UR in time to come ? BH gives 90% back while UR gives 80% back of then current membership due. 

Thanks for your input. I have written off BH but am starting to "see the light"  of BH perhaps. If they give referral to exisiting members, I will defintely have to put you in if I do decide to pursue further.


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## NeilGoBlue (Jun 10, 2007)

puffpuff said:


> I have not reviewed the memebrship agreement, but going by the 10% liquidation fee charged in the worse case senerio, I agree with you that the downside is limited to your 20% and in the worse case , 30%.
> 
> All  members who join T and H at $ 450,000 prior to bankruptcy and trasnferred to Ultimate now has the equivalent of Ultimate Resort Elite Silver member ( they were given a UR elite Bronze equivalent on transfer  and a $70,000 upgrade credit) that has market value of #300,000. Members can get the 300,000 back if they leave the club after 7 years stay from now.
> UR resort picked up the properties at 35% discount and memebrs transfer over take a 35% haircut.
> ...




Hmmmm... I think the downside in UR is larger because they use leverage (borrow money).  This might, emphasize might, be mitigated by having more members, but I doubt it.  Truth be told, I didn't look at their financials, so I don't know.  You might not ever get an accurate handle on their financials,  because it's so complicated with the TH acquisition.  If the DC market collapses, or the real estate market collapses...UR and the rest of the DC market except BH, will be in for a disaster.

I have no idea who's deposits will go up the most in the future.. I think it would be BH, since they are transitioning to 2-3Mill homes from 2 mill homes and they have already announced substantial price increases.  BH deposits will be a direct reflection of the real estate market (what they need to buy the homes for cash).  UR price increases will be tied to the real estate market and to the DC market also.  It seems that 3Mill homes in today's dollars is the sweet spot.  2Mil homes don't quite cut it (might not be ski in, ski out, or on the beach) 5Mil homes seem like overkill (at least for my networth level), 2-3.5 seems to be about right)  

I don't even know if BH has a referral program.. it doesn't matter to me.. if you join, it helps me because it creates more money to buy more homes.. but thanks for the offer!

Were you looking at UR elite?  Or the basic program.. to me that is a major question... The basic UR package homes are inferior to BH (they cost less to buy).  The UR Elite are better than the current BH homes (cost more to buy), but I would think with BH increasing the price of the homes they are buying, they will compete with UR Elite. (maybe BH being ever so slightly behind).  If you are comparing UR basic with BH, then you are comparing apples and oranges as far as quality of homes...


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## Elsway (Jun 10, 2007)

puffpuff said:


> the biggest problem with existing BH equity model is that while the properties are debt free, the MF remains high and similar to those clubs that are 50% leveraged. The money trail inevitably lead to one conclusion - a large portion of the MF geos to pay  executives for running the operations. I could be wrong, but no one so far has been able to explain by the MF is so high when the properteis are debt free.



I have posted this before, but people seem to ignore it:

http://www.bellehavens.com/documents/AnnualDuesDemystified.pdf

Only 9% of BelleHavens annual dues are profit for the management company.

BelleHavens annual fees are slightly higher than some other clubs because they charge a management fee of 9% and because they assess 8% for a capital reserve for major home maintenance/improvement, etc...


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## puffpuff (Jun 10, 2007)

I am looking to buy ER Basic Platinum (50 days)  vs. BH Adventure 30 days, both selling for about the same price . You are right - UR Basic homes is inferior to HB.

By the way, with 10 adventurer member equivalent  per home of 2,000,000, occupancy rate is 80%. Do you find the reservation system stretched?


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## puffpuff (Jun 10, 2007)

Elsway said:


> I have posted this before, but people seem to ignore it:
> 
> http://www.bellehavens.com/documents/AnnualDuesDemystified.pdf
> 
> ...


Thanks. 

The managment Fee of 9% is on top of the managemnt team of 19% and on top of administrative fee of 4% . The management fee is really a royalty payment to the financiers on a perpectual basis. The actual working team's pay is already factored in the 13% (9 +4 ).  

There  is also a 12% Belleadventure fee. I dont quite understand the concept of this levy which equates to a  mandory assessment belladventure is imposing to be  custodian of  our personal funds  only to be return to members every three years when its the members money to begin with. Is it possible that BH needs the cash and is using it "free of charge" ? 

Back out all three "fat" and you have a 25% reduction in MF. Would that not be better for members ?


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## Elsway (Jun 10, 2007)

puffpuff said:


> Thanks.
> 
> The managment Fee of 9% is on top of the managemnt team of 19% and on top of administrative fee of 4% . The management fee is really a royalty payment to the financiers on a perpectual basis. The actual working team's pay is already factored in the 13% (9 +4 ).
> 
> ...



Is BelleHavens supposed to operate without employees?  I don't see employee compensation as "fat".

Most casino gaming companies operate in the same way.  Employees are compensated at the operating company and a management fee is paid to the holding company, which provides the equity holders with a return on investment.  The term "management fee" is a bit of a misnomer - it is, in fact, a dividend to equity holders.  In the case of BelleHavens, this is how the equity investors are compensated for their investment - completely transparent, and completely understandable.


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## puffpuff (Jun 10, 2007)

I am not sure what members get for the 9% they pay out. . Employee pay are already factored into the 19% from my understanding.  In addiiton,  the properties are being sold to the members with a built in profit of 15-20% from the private equity guys who fronted the money to purhcase the properties ahead of the members coming in. They are not sold to the members at cost.  For a $2000000 house at transfer, the property value is closer to 1,600,000 true market value. The 9% seems to be extra revenue stream .. I could be wrong.

In any case, as long as the members are aware and are prepared to pay, to each his own.

Any thoughts on the reservation system and the belle adventure concept? 

This has been a most educational experience and thanks to all for particpating.


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## Elsway (Jun 10, 2007)

puffpuff said:


> I am not sure what members get for the 9% they pay out. . Employee pay are already factored into the 19% from my understanding.  In addiiton,  the properties are being sold to the members with a built in profit of 15-20% from the private equity guys who fronted the money to purhcase the properties ahead of the members coming in. They are not sold to the members at cost.  For a $2000000 house at transfer, the property value is closer to 1,600,000 true market value. The 9% seems to be extra revenue stream .. I could be wrong.
> 
> In any case, as long as the members are aware and are prepared to pay, to each his own.
> 
> ...



I have yet to have my one-on-one conversation with BelleHavens, so I am ignorant of certain details.

However, my early read is that the belle adventure aspect is designed to accomplish two things:  1)  Give members some greater diversity in their vacation options, and 2) Reduce crowding/occupancy during peak travel periods (such as holidays).  I am not sure how the dividend functions.

I recall that the Hunt investment was designed, in part, to upgrade the online reservation system.  I haven't done my trial run of the system, but I suspect it will enable me to see precise availability of properties, real time, so that I can research all of my choices before booking a property.

Like you, I am a bit confused as to why BelleHavens seems to have a finders fee built into new property acquisitions.  I will, most assuredly, challenge them on this fact when I conduct my interview.

Like everyone here, I want to make sure that the DC I join is offering sufficient value to entice me, but not offering so much value that it threatens the club's longevity (and the safety of my deposit).  Understanding the business model, including the source and amount of profitability, is crucial.

Thanks for participating in this useful discussion.


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## NeilGoBlue (Jun 10, 2007)

Elsway said:


> I have yet to have my one-on-one conversation with BelleHavens, so I am ignorant of certain details.
> 
> However, my early read is that the belle adventure aspect is designed to accomplish two things:  1)  Give members some greater diversity in their vacation options, and 2) Reduce crowding/occupancy during peak travel periods (such as holidays).  I am not sure how the dividend functions.
> 
> ...



The high member ratio could become an issue in the future.  Right now there is no problem.  Banyan properties, which is the management company for BH has pre bought homes and let's the club use them.  So, right now there doesn't seem to be an issue.  I went through all there properties on line and there is plenty of room.  A few of the properties are sold out over the june/july months, but all other properties have space available.


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