# Destination Club Resignation Lists



## Elsway (Jun 10, 2007)

Unlike timeshare owners, destination club members cannot sell their asset on the open market.  Instead, they must resign their membership and wait for a refund from the DC.

Most of the clubs operate on a 3 in 1 out policy (or a 2 in 1 out policy) which means that the resigning member must wait for 3 (2) new members to join before getting a refund of their deposit.

The risk factor, which has been widely discussed on this board, is that certain clubs (or the industry as a whole) may lose popularity and fail to attract new members.  In this event, a winddown process may commence and members stand to lose a significant share of their deposits.  This risk is probably the most stated reason for why some of us dislike the DC business model.  

Given the Tanner and Haley bankruptcy, it would not be surprising to learn that there have been an increase in membership resignations and a slowing in member growth - but I do not believe this is the case.  But let's gather some collective knowledge...

To those of you who are performing due diligence on DCs, can you answer the following questions as they relate to any individual clubs?

1)  How many club members resigned last year?
2)  How many club members resigned this year?
3)  Do you currently have a waiting list for resignation?
4)  Have you ever had a waiting list for resignation?

I think I know the answers for Exclusive Resorts:

1) I think the answer is one.
2) Zero
3) No
4) No

Please, post your information here.


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## Steamboat Bill (Jun 10, 2007)

Althought this thread makes sense...it probaly does not apply to the DC industry as a whole where there is almost zero people on a waiting list to resign. If there is a bad DC or a failing DC, then they would have a longer list than the rest of the industry. This would point to an isolated failure, not an indication of trouble in the entire industry.


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## PerryM (Jun 10, 2007)

*Why no resale market for DCs?*

I've never asked a DC, but maybe someone here has asked this question:

*"Why not allow DC memberships to be sold on a resale basis?"*

I can't think of one reason why a member can't run an eBay listing and sell it for 85% of the going membership rate.  Well, there is one reason I guess: greed on the DC's part.

Beyond just plain greed can anyone think why a member can't sell it for whatever the market will bear?  

This would allow the DC to buy back memberships at 3 in/1 out for 80% of the original price or the member gets 80%+ on the resale market.

But what if someone on eBay finds that they can only get 50% of the membership fee but need the money today?  Would this new information, the worth of the DC to the general public, hurt the DC?

Well, I'm going with greed as the answer.


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## Bourne (Jun 10, 2007)

Elsway said:


> 1)  How many club members resigned last year?
> 2)  How many club members resigned this year?
> 3)  Do you currently have a waiting list for resignation?
> 4)  Have you ever had a waiting list for resignation?
> Please, post your information here.



I have the answers for High Country Club. 

1)  How many club members resigned last year?
*2006 - Two *

2)  How many club members resigned this year?
*2007* - One. Based on the fact that their resignation count is 3. It was two when I did my due diligence. 

3)  Do you currently have a waiting list for resignation?
*No*

4)  Have you ever had a waiting list for resignation?
*No*

On top of it, HCC displays this information on its website for everyone to read. http://www.highcountryclub.com/about/CEO_Letter.asp

The answers to the first two questions for ER may be wrong.


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## Steamboat Bill (Jun 10, 2007)

PerryM said:


> *"Why not allow DC memberships to be sold on a resale basis?"*
> 
> I can't think of one reason why a member can't run an eBay listing and sell it for 85% of the going membership rate.  Well, there is one reason I guess: greed on the DC's part.



On the surface, this may apear to be correct, but I don't think greed is the #1 reason.....it is 100% control of memberships.

I wanted to join the Boca Raton Resort (golf, spa, beach club) many years ago, but was put off by the $40k price. I tried to buy one resale, but they don't allow it. This is not unusual as most private golf clubs do not allow selling memberships on the open market as it is not an asset as much as it is a club.

You can't sell your Costco, AAA, or Delta frequent flyer membership plans.

The DC industry seems to parallel the golf club and or resort clubs, not the real estate free market. I don't see a problem with this at the present time.


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## Bourne (Jun 10, 2007)

In addition to what Bill said, some of these clubs choose who can join. 

Even if you had the money for it, Yellowstone Club would not let you in. Exclusive Resorts, Ultimate Resorts, etc look at your tax returns and net worth before they let you in. 

The whole point of a club is it's exclusivity. Especially on the higher end.


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## BocaBum99 (Jun 10, 2007)

Any rule that requires more than 1 in = 1 out is by definition a pyramid scheme.  Everyone is okay as long as membership is expanding.  As soon as membership plateaus or declines, then all members are hosed.

Anyone who believes that all clubs grow forever is sadly mistaken.


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## mshatty (Jun 10, 2007)

These DCs seem similiar to the new planned retirement projects where a person "buys" an apartment/condo of a certain size for $150,000 to $300,000  In addition to this deposit, a monthly payment is made, similar to a lease payment.

The beauty of the contract is that when the contract is terminated, either under certain conditions prior to death or by death, the person or their estate receives their deposit money back in full.

The problem with the contract is not its terms as they are clearly written and fair to the depositor.  The problem with the contract is what is not controlled by the contract. 

The contract does not disclose the financial line of credit that exists now or in the future that is or will be secured by the underlying project and all of its accounts.

Each of these projects are set up as an individual legal entity in the state where it is built.  Each project will succeed or fail on its own accord.  The $150,000 to $300,000 goes into the general operating account of the project developer; some money is used to build the project, some to pay operating expenses.  There's no interest returned on the money.

There are no disclosures about what if the project fails or goes bankrupt?  In most cases, the secured lender foreclose on the project and sell it.  All contractual claims would remain against a defunct entity with little or no assets.  There are many other scenarios that can turn bad for these contractual promises.  

My point is that the contracts are only as good as the mangement's honesty and competence as well as a viable marketplace.  The return of a depositor's money or a member's money is specious until it is actually paid and in their account.


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## PerryM (Jun 10, 2007)

BocaBum99 said:


> Any rule that requires more than 1 in = 1 out is by definition a pyramid scheme.  Everyone is okay as long as membership is expanding.  As soon as membership plateaus or declines, then all members are hosed.
> 
> Anyone who believes that all clubs grow forever is sadly mistaken.




BB may have stepped into something here.

I'm a member and in order for me to get my deposit I might have to recruit other members so I can get 80% of the current membership fee (as in some clubs)  Is that not, indeed, a pyramid scheme?

I hope for the sake of the DC industry it isn't.


I could see the DC industry dropping back to 1 in/1 out, but even that might have me beating the bushes and trying to find new folks wanting in so I get my payoff.


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## PerryM (Jun 10, 2007)

mshatty said:


> These DCs seem similiar to the new planned retirement projects where a person "buys" an apartment/condo of a certain size for $150,000 to $300,000  In addition to this deposit, a monthly payment is made, similar to a lease payment.
> 
> The beauty of the contract is that when the contract is terminated, either under certain conditions prior to death or by death, the person or their estate receives their deposit money back in full.
> 
> ...



Major difference here.  The retirement community folks are heavily regulated with all kinds of state laws, there are NO DC laws to protect anything.


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## pwrshift (Jun 10, 2007)

If these companies are doing as well as they like to say they are, why is there any 3-1, 2-1, 1-1 requirement at all. Surely they can just return the money from their slush fund.   Getting all that money to use interest free and having only to return 80% must be making money for someone ... just not the DC members.

Brian


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## mshatty (Jun 11, 2007)

PerryM said:


> Major difference here.  The retirement community folks are heavily regulated with all kinds of state laws, there are NO DC laws to protect anything.



True, a different business but the issue is whether you get anymore than a contractual promise for a future performance that is not secured by the real estate.


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## PerryM (Jun 11, 2007)

mshatty said:


> True, a different business but the issue is whether you get anymore than a contractual promise for a future performance that is not secured by the real estate.



It's a lot more than that.

As someone who has a loved one in a retirement village I spent a lot of time investigating all the Illinois state statutes that applied in our case.  They cover the deposit in depth and what can and can't be done by the facility with it.   They have many consumer friendly laws to aid in the security matter.

DC's get you back to the wild west days - better pack a slick lawyer with you to defend yourself.


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## Elsway (Jun 11, 2007)

Bourne said:


> I have the answers for High Country Club.
> 
> 1)  How many club members resigned last year?
> *2006 - Two *
> ...



Thanks Bourne.

The answers for ER are my recollections from a conversation that occurred a couple of months back.  I seem to recall that there was a divorce situation that caused one member to resign - but I could be confusing this conversation with others that I had with other clubs.

Someone please correct me - if you feel you have better information.


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## mshatty (Jun 11, 2007)

PerryM said:


> It's a lot more than that.
> 
> As someone who has a loved one in a retirement village I spent a lot of time investigating all the Illinois state statutes that applied in our case.  They cover the deposit in depth and what can and can't be done by the facility with it.   They have many consumer friendly laws to aid in the security matter.
> 
> DC's get you back to the wild west days - better pack a slick lawyer with you to defend yourself.




Unfortunately, not all states have the same protections as Illinois on deposits.


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## Elsway (Jun 11, 2007)

pwrshift said:


> If these companies are doing as well as they like to say they are, why is there any 3-1, 2-1, 1-1 requirement at all. Surely they can just return the money from their slush fund.   Getting all that money to use interest free and having only to return 80% must be making money for someone ... just not the DC members.
> 
> Brian



Which DC claims to have a "slush fund"?  From what I have heard, none of them have yet to reach the critical mass at which they are profitable.  This is not unusual for companies at an early stage of development.


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## BocaBum99 (Jun 11, 2007)

Elsway said:


> Which DC claims to have a "slush fund"?  From what I have heard, none of them have yet to reach the critical mass at which they are profitable.  This is not unusual for companies at an early stage of development.



Exactly.  The DC needs to pay sales commissions and operating expensives.  This money comes out of both maintenance fees and member deposits.  If they don't hit critical mass, then the operating expenses will burn through the cash.

If sales don't meet expectations, then the management needs to sell assets or acquire debt to pay bills.  That poses risks in your member deposit.


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## Steamboat Bill (Jun 12, 2007)

For the record, I too wish the DC industry would not have a 2:1 or 3:1 new member to resingation list. So far this has not been a problem, but the future is not guaranteed. As a matter of record, most golf clubs and resort clubs also have this restriction.


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## TarheelTraveler (Jun 13, 2007)

Just as an FYI, when I was doing the due diligence on Crescendo about eight months ago, they had never had a resignation and did not have a resignation list.  I ended up joining Crescendo and have been very pleased.  Like a lot of you, I didn't like the country club concept of most destination clubs and wanted to own the real estate.  Great real estate performance so far (mostly from the foreign properties).  Incredible houses.  Best vacations of my life without doubt.


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## Elsway (Jun 14, 2007)

TarheelTraveler said:


> Just as an FYI, when I was doing the due diligence on Crescendo about eight months ago, they had never had a resignation and did not have a resignation list.  I ended up joining Crescendo and have been very pleased.  Like a lot of you, I didn't like the country club concept of most destination clubs and wanted to own the real estate.  *Great real estate performance so far (mostly from the foreign properties)*.  Incredible houses.  Best vacations of my life without doubt.



I heard somewhere that Crescendo's real estate portfolio appreciated by 8% in 2006.

The foreign property appreciation may have been due to currency translation gains.  The $US declined against the EURO in 2006 - so properties which are valued in Euros become more valuable when translated into $US.  If the $US were to recover, you could experience a reversal of these gains.


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## TarheelTraveler (Jun 14, 2007)

That is a good point. However, all of Crescendo's foreign acquisitions have been in places where real property transactions are typically conducted in U.S. dollars.


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