# It's probably a great time to start an Equity Destination Club



## BocaBum99 (Apr 5, 2009)

The real estate market is so bad right now that a bunch of investors can probably get together to buy up some really great Vacation Properties with cash and create a new Destination Club.  Or course, I would call it something else given the taint the current market has on it.  Early on, the accommodations will just be rented to the general public until the market for sales returns in a year or two.


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## Cathyb (Apr 5, 2009)

BocaBum:  Have you been hitting the Hawaiian Punch again


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## TarheelTraveler (Apr 5, 2009)

I agree with BocaBum.  Some great real estate deals out there right now.   Furthermore, there is no equity DC at the $1M price point.


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## BocaBum99 (Apr 6, 2009)

Here is more information on the Business I would create.  It really is a great time to start this concept because properties can be acquired for less than the price to build.  This will be successful purely based on the assumption that property values will eventually return.   The key is to get access to patient capital so that debt isn't required.  I wouldn't want to have customers provide interest fee debt to be members.  I always thought that was a bogus deal for the customers.

I would create a real estate investment trust.  No debt.  Only investors.  The general partners make the property decisions and manage the Club.  Limited partners would put in cash.  Their returns would be based on capital appreciate of properties over time plus cash flow associated with the Club.

Members are actually members.  They pay a fee to become a member of several thousand dollars and that fee is non-refundable.  They also pay annual fees plus they get a certain amount of days usage at the properties.  Non members can rent units, but their rate is a lot higher than it is for members so that it pays to become a member.  Plus members can become limited partners if they want.  

What you end up with is a non convoluted business structure where you know when you are an investor vs. when you are just a member using Club properties for vacationing.

The critical success factors would be intelligently buying properties in great destinations and creating an overall branded experience for the Club similar to what the Destination Clubs attempted to create.  Then, it would be ensuring that cash flows would cover expenses so that there wouldn't be any additional capital calls to investors.  There wouldn't be any debt servicing, so costs would be true operating costs.  Operating budgets would be based on a hotel model with 70% expected occupany and conservative ARPU.  The key is to be as close to cash flow breakeven as possible until the real estate market returns.

This would be very fun to create.  If anyone is seriously interested and has access to capital, investors or talent, let me know.  I may be interested myself.


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## thinze3 (Apr 6, 2009)

*Timeshares have fallen even more!*

The only problem is that you can buy a platinum month in Hawaii or Aruba for $70K and a platinum month in Florida or SoCal for about $40K.

For $110K and $12K annually you get 8 premium weeks in a Marriott or a Westin.


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## BocaBum99 (Apr 6, 2009)

thinze3 said:


> The only problem is that you can buy a platinum month in Hawaii or Aruba for $70K and a platinum month in Florida or SoCal for about $40K.
> 
> For $110K and $12K annually you get 8 premium weeks in a Marriott or a Westin.



There's no problem.  This is NOT a timeshare.  And, the properties don't need to all be in the same price range.  The wholesale rate (for members) and the retail rate (for non-owners) will be market based and vary over time as market conditions change.

If you are an investor, this is a way for you to get exposure in the vacation property real estate market where the properties were picked up as distressed properties with nice upside capital gains potential.

If you are a memeber, you join because you are getting a good deal relative to renting the equivalent accommodations across multiple locations with a common branded experience.


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## sjuhawk_jd (Apr 6, 2009)

*Market potential*

How is the market for "tenants" for such properties (I am assuming that these are individual villas and houses with 3 to 8 bedrooms, etc.). 

I, for example, prefer the resort atmosphere: to be able to mingle with other guests, have plenty of onsite activities and staff, kid's club, room service etc. These are usually missing from "destination club" properties.


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## ecwinch (Apr 6, 2009)

BocaBum99 said:


> The key is to get access to patient capital so that debt isn't required.  I wouldn't want to have customers provide interest fee debt to be members.
> 
> Their returns would be based on capital appreciate of properties over time plus cash flow associated with the Club.



Strictly looking at this from the investment side, I think the exit strategy would be problematic.

Patient capital would have to be willing to make a dead money investment for at least 24-36 months. Even then the rental cash-flow would likely pay only below market returns on the investment.

The problem is the exit strategy for that money. Then I think you would have return to the member free money model or uncomfortable leverage.

I think the DC model was challenging for similar reasons. Both models are based on the premise that real estate assets will be worth more tomorrow then they are today. Only difference is timing and positioning in the market cycle

I think the fractional/timeshare model that Terry suggested is more viable. For one, it minimizes the dead periods of your inventory which is a drag on cash flow.


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## TarheelTraveler (Apr 8, 2009)

sjuhawk_jd said:


> How is the market for "tenants" for such properties (I am assuming that these are individual villas and houses with 3 to 8 bedrooms, etc.).
> 
> I, for example, prefer the resort atmosphere: to be able to mingle with other guests, have plenty of onsite activities and staff, kid's club, room service etc. These are usually missing from "destination club" properties.



For what it's worth, many DC's emphasize the resort component (Exclusive Resorts, the A&K Residence Club, etc.).  It was definitely an important decision factor for us.  We love having our own pool, but also like to have access to club amenities, such as the kid's club, resort pool, etc.  The only thing you typically don't get is room service, as you're in a free standing house typically in a resort development.


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## taffy19 (Apr 8, 2009)

thinze3 said:


> The only problem is that you can buy a platinum month in Hawaii or Aruba for $70K and a platinum month in Florida or SoCal for about $40K.
> 
> For $110K and $12K annually you get 8 premium weeks in a Marriott or a Westin.


That is true but you hardly ever get appreciation even if the market is normal unless you buy at deep discount prices. Timeshares are not investments except for a very few smart people here but HI real estate has been over the years.



sjuhawk_jd said:


> How is the market for "tenants" for such properties (I am assuming that these are individual villas and houses with 3 to 8 bedrooms, etc.).
> 
> I, for example, prefer the resort atmosphere: to be able to mingle with other guests, have plenty of onsite activities and staff, kid's club, room service etc. These are usually missing from "destination club" properties.


If you like resort amenities, then stand alone private homes may not be the way to go for you but for other members, who do not care, renting these places at a discount rate may let you stay at a very nice place and location. The moment the economy improves again, rental rates for these luxurious places will go sky high again. Right now, they are soft.


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