# A Free DC!



## PerryM (May 19, 2007)

I like BelleHavens since they are the ONLY DC that is equity based – you do own the club!  They have an opportunity that folks should be aware of.   Look at BelleHavens 

Their new Traveler membership is designed for timeshare owners.  It costs $100k to join, MFs of $8,500 per year and you get 15 nights of usage.  You own 1/20 of a $2 M condo.  They are upgrading to $2.75 M condos shortly.

That membership fee will rapidly escalate to $155k in no time (Just 8 memberships need to be sold) and you can then cash out and get 90% of the $55k increase or $49,500.  *That’s almost 9 years of FREE MFs!!!*  (There is a minimum holding period of 2 years I think)

This means that you can buy their Traveler membership, use it 9 years, and then sell and the total cost to you is $0,000,000.00 If you want to throw in the lost opportunity cost that’s up to you.  If you do so, then do that on all your alternative uses of that money too.

I talked with Stan Bonnemort, the Director of Membership Sales, and he said that they would allow timeshare owners to postpone the 1st year of MFs as we use our current timeshares.  They also are open to allowing 3 months to pay the membership fee at no cost.

This is something you might consider – free DC usage and the protection of 100% ownership in the DC.

If you do something or learn something I’d like to hear about it.  The deadline to write a contract is June 15, 2007 and then you get 30 days additional to do Due Diligence – imagine that timeshare owners, 30 days to think it over.

Don't say you weren't given "Fair Warning".  They are doubling their destinations and allowing you to stay at them for FREE.

Is this a great country or what?  Free usage of $2 M condos. 

_Controversial political statement removed.  ouaifer, Moderator_


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## Steamboat Bill (May 19, 2007)

PerryM said:


> This is something you might consider – free DC usage and the protection of 100% ownership in the DC.
> 
> If you do something or learn something I’d like to hear about it.  The deadline to write a contract is June 15, 2007 and then you get 30 days additional to do Due Diligence – imagine that timeshare owners, 30 days to think it over.
> 
> Don't say you weren't given "Fair Warning".  They are doubling their destinations and allowing you to stay at them for FREE.



Ok...Perry are you finally joining a DC?...it is FREE after all.


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## PerryM (May 19, 2007)

Steamboat Bill said:


> Ok...Perry are you finally joining a DC?...it is FREE after all.



Going on vacation, starting Sunday, to Las Vegas and will ponder the thought.


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## Steamboat Bill (May 19, 2007)

PerryM said:


> Going on vacation, starting Sunday, to Las Vegas and will ponder the thought.



See if you can visit the BelleHavens property in Las Vegas....I would be interested in your opinion.

http://www.bellehavens.com/details.php?id=63&tp=1


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## PerryM (May 19, 2007)

Ohhh, I'll try that.


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## Steamboat Bill (May 19, 2007)

Have anyone considered Ultimate Resorts?

It appears they also offer Equity Ownership....like BelleHavens

They bought T&H and now have 775 members and 105 homes!!!

Here are the key advantages of Ultimate’s Lifetime Membership: 
Lifetime Membership can benefit you as the Club grows. All Lifetime Members can redeem their membership deposits for 80% of the then current membership fee. (For example, the current fee is $185,000. If you decide to redeem your membership after seven years when the fee is, say, $275,000, you would receive $220,000, a $35,000 gain on your original membership deposit.)


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## puffpuff (May 19, 2007)

1. It takes 20 travelleer member ,each paying 100000,  to purchase one home at 2,000,000. For eight new homes to be transferred to be wholly member owned, about 160 traveller member is needed. How long does this take - I guess at least 12-24  months. 

2. Assume BH can achieve the goal, and entry fee becomes  $150,000. Potential new member will have to compare with UR , which offers far more destinations, much cheaper cost per night ( UR offers 48 days for 220000 fee currently, while BH offers 21 days for about the same price currnetly. ( To be fair to BH, their properteis are about 25% better ) EVen at the entry  level, BH only offers 15 days without family use for 100000 while UR offers 18 days with family use for abnout the same price ). If BH moves up the retail price to 150000 , will it price itself out for those who are mostly concern with vacation experience, and left itself holding onto  a smaller "equity" conscious niche? If one is purely looking for vacation experience and no equity component, UR offers a far better value today.  

3. Now let us look at the equity issue. Ultimate offers 80% , while BH offers 90% of membership fees on exit. While it can be said that UR is highly leveraged ( say 70%), while BH is not ( say 0%) , the reality is that both are highly leveraged. Why? BH is paying a high price to entice private equity investor group to front the money and finance the purchase of the 8-11 homes ahead of memberships coming in. Coporatre financers normally demand about 13% return annualized, a few up fron points, and on going goodies ( in theform of options , warrants etc). In this case, they put their hand in the MF. A part of the on going  MF will be given to the management to keep them fat and  to the investors forever as annuity in return for the risk that they take. This means that homes will be transferred to members not at  todays cost but at a reasonsably inflated price at time of transfer ( the longer it takes, the bigger the price tag ). On top, a large part of the MF goes to pay the investor . Otherwise, it does not make sense for MF to be close to $566 ( $8500/15 days)  a day to keep the house opetrating when it is debt free. The hard cost of keeping the house open per day is about $ 250, and there is a$300 per day premium to pay the management and their investors.  At the end of day, investors are likely to walk away with 20% annualized yield one way or another for this deal. There  is no free lunch. Members may hold the properties free and clear, but it will be at premium pricing, and more importantly, they will be held hostage to forever be paying a high MF ( double the normal)  to pay for the investor's pre-fronting the money. 

UR and others are financing their purchases, but financing is running today at about 8%, not 20% one has to  pay private equity people.  I sense that BH cannot get bank financing and have to turn to the private equity and private financerswhich demand a higher premium. If Banks can finance them , they would be much more competitive, and say, charge MF of $ 400 instead of $566 per day. The annual MF for traveller should be about $ 5000 and not $8500.  Imagine what a compeitive advantage that would be - 100% owned, low MF - best of both worlds. I for one will line up to join. 

I therefore may habor an erry feeling of a empty sense of "ownership". If there is true ownership, the MF should be about 50% of what they are charging. Someone is making money off the food chain - in this case, it is the managment team and the investors, and lots of it. And it is forever !

Eventually, if UR has lower cost of financing, the will be a better competitor on the open market. They will be able to pass more back to the consumer, as they already are doing, with lower price per night, free family use, special points that BH is unable to do. Size does count, and size favors UR. 

I think that those who seize the "opportunity" now with BH may have a reasonable chance of seeing the membership price increase up  a bit to  attract those who buy into the "equity" thesis. I obviosly am not too overwhelmed at this junction, and I am still learning. 

Perhaps a simple analogy is this. 
You may be a McDonalds REstaurant  franchise owner ( with BH) , but you have to use exclusive Mc Donalds cups, sppons, french fries that cost twice as much as open market price. Your bottom line is not that much better compare to a company own store ( UR) that hries you as a manager and gives you a bonus if the entire company does well.  As far as the market place is concern, pricing  for memebrship will be largely  determined by the vacation experience proposition rather than by ownership equity  proposition once the "equity " proposition is no longer enticing .  Even if the equty portion is enticing, it should be a small facotr and not an overwhelming factor. Both BH or UR cannot overprice and have to stay compeitive within the market segment they are in, so the operator with larger economy of scale , efficiency, lower cost of funds, bwetter customer service and better marketing wins. 

As far as safety is concern, BH also have the problem in that if they cannot execute the model of  achiveing the sales target wtihin a reasonable period of time, .they will not be able to buy the homes at close to cost but to pay an ever increasing price regardless of market condition. This mayl backfire as their financing cost is doubel that of normal financing. This is a risk that cannot be ignored. 

I have a gut feel that this effort by BH is a last resort breakout attempt to survive. I hope they do well. 

As usual, I could be dead wrong, and please do not spare your bullets to shoot me down. 



I am serioulsy looking at both models, and I welcome all thoughts .


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## PerryM (May 19, 2007)

*Assumptions...*



puffpuff said:


> <Snip>
> I have a gut feel that this effort by BH is a last resort breakout attempt to survive. I hope they do well.
> 
> As usual, I could be dead wrong, and please do not spare your bullets to shoot me down.



Puff, many of your assumptions are wrong I believe.

There is NO comparison between BH and UR – BH owners own the condos, UR owners do not.

That one difference is all I need to know – this is what I want in a DC – a country club of condos where I am a part owner.  

BH has a 10% “Restocking fee” and UR has a 20%.  BH has a guaranteed price increase and UR does not.  This is a big deal to me – a guaranteed price increase that I get 90% of.  BH can’t plug it that way, that would get them into trouble with the SEC.

BH DOES NOT leverage!  They have a company that’s sole function is to scout for new locations, buy them (probably financed) and then turn them over to BH for CASH.  BH pays 100% of the sales price and there is NO leveraging.  This is something I’m looking for and UT does not do this – they leverage.  However, I am not up to speed on UT and may take the time in the next week to investigate them.

The money you pay to BH in membership fees go into an escrow account until enough members can be found to buy the new condo.  During that time there is an oversaturation of 1 condo upon the BH inventory – but NO leveraging.

I’ve only looked at BH a few days – I could have some facts wrong, be unaware of the facts, or just got them wrong.  I don’t recommend anyone invest in BH – I am not at this moment.  The deadline of June 15 then gives you 30 more days to do your due diligence.

Guessing that BH is making a last ditch breakout attempt is not borne out by any of the facts that I see.  I see a company that believes the Drive-By Media has tried to break the real estate market but failed and folks will start to realize there was no bubble busted – only the Drive-Bys attempt at destroying the economy – why I have no idea.


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## puffpuff (May 20, 2007)

Perhaps you can help me understand why the MF of BH is almost the same as that of an leveraged club like UR if the properties of BH are debt free? MF for BH should be 50% reduced . 

BH management and financers are  being handsomely rewarded by being paid inflated sales price for the properties they fronted, and a on going annuity from a piece of the MF that the members are paying each month. This is a sweet deal for the investors . 

Yes the members technically owns the property free and clear,but for this privilege, they are being handcuffed to pay a much higher MF in return.    ownership comes with an very expansive on-site manager as part and partial of the deal plus a significant cash drain akin to be payiing royalty for life to the ifinancer. This is what motivates the investors to finance - they get their front money back plus profit once the homes are transferred to the members, and from that point on, a perpectual income stream without doing more work. A sweet deal indeed. 

Perhaps I am not seeing the real benefit of "ownership" in reality terms. 

The BH guarantee of increasing from 100000 to 125000 only happens once on June 15th. Thereafter further increase  is dependent on sales performance. Well one guarantee is better than none, so based on 90% of 125,000, you still have one year of free MF paid for if you need to back out after 24 months. That is the minimum upside.

Looking forward to your comments as you get more into it. If BH is good, I may enroll. Thanks.


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## PerryM (May 20, 2007)

puffpuff said:


> Perhaps you can help me understand why the MF of BH is almost the same as that of an leveraged club like UR if the properties of BH are debt free? MF for BH should be 50% reduced .
> 
> BH management and financers are  being handsomely rewarded by being paid inflated sales price for the properties they fronted, and a on going annuity from a piece of the MF that the members are paying each month. This is a sweet deal for the investors .
> 
> ...



Going on vacation to Las Vegas, today, and hope to get answers next week from BH.


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## Bourne (May 20, 2007)

At this point, I can punch lots of holes in BH's new plan but let me throw out my biggest concerns. 

The price is going up by 55% in the near future. The company says that the money is solely used for buying properties. Hmmm... The cost for exisiting portfolio of properties is $2.0M. BH says that it is now moving into $2.75 mil... range as it has increased the prices. That is either a smoke screen or disaster in the making. 

BH provides 90% of existing prices for an exit from the club. The previous posts detail the potential % margin for members. Keep in mind that these exist for existing members also. Shoud they choose to exit, they cash into the profit too. Does that mean the exisiting properties appreciated from $2.0 mil to $2.75 mil overnight to cover for those potential expenses. 

IMHO, it is a last ditch attempt by BH to break out into a growth phase. It is leveraging money to do so. Should it work out, things would be fine otherwise we have a period of stagnant growth or a potential merger.


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## travelguy (May 20, 2007)

*The dark side of BH?*

Lot's of excitement about making money with Bellehavens but not much discussion on how their business model actually works.  I raised these questions before and don't believe I've seen anyone answer them:

1. HOW do they make money?
2. WHO's making the money?

Has anyone seen a P&L, Balance sheet, cash flow statement, and/or projection?

It's great that the members "own" the properties but Bellehavens also has a list of heavy hitting "Investors" and a stacked board of directors (It appears that the "Investors" control the board.)

Included in the Investors is a VC firm that actually makes the following statement:
"Their model is unique from most venture capital or private equity firms in that they not only invest in and help capitalize the companies they work with, but *then take an active management role with the companies *to help set strategy, build the organization, and lead execution." 
How is this different than any other VC in the world?? They ALL take control!

Again, I've spent no time investigating other than a quick look at Helium and the Bellehavens web site. Has anyone here done some due diligence on their business model on the management and investment side?


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## Elsway (May 20, 2007)

As has been suggested, investors in Bellhavens expect a return on their investment - and it is not obvious that the company's business plan provides for a return on invested capital.

Perhaps this link will help demystify the issue:

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

According to the linked document:  annual dues cover the following:

Fixed home costs (29%), variable home costs (19%), the Bellehavens team (includes senior management compensation) (19%), Belleadventures (12%), capital reserve (8%), general and administrative (4%), and...Management fees (9%).  

Management fees, according to the document are intended to "provide an appropriate profit to the management entity.

So, if each property has the equivalent of ten members, each paying annual dues of $8,500 - the gross dues per property are $85,000.  The all in cost of servicing these ten members is 91% of $85,000 - and the management company pockets a profit of $7,650.

This may not seem like a large profit, but consider the profits if/when Bellehavens has a few hundred properties under management.  (300 X 7,650 = $2,295,000).  Profits will grow depending on the rate at which dues are increased and the rate at which Bellehavens adds new members (and properties).

And, the business is self funding.  There will not be a need to increase equity funding. 

The original investors invested a chunk of cash to buy the initial properties and set up the company's infrastructure.  They now earn a 9% profit margin on a growing revenue base, in perpetuity.


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## PerryM (May 20, 2007)

Bourne said:


> <snip>
> The price is going up by 55% in the near future. The company says that the money is solely used for buying properties. Hmmm... The cost for exisiting portfolio of properties is $2.0M. BH says that it is now moving into $2.75 mil... range as it has increased the prices. That is either a smoke screen or disaster in the making.



Just checked into the Marriot Grand Chateau in Las Vegas - at NOON!!!  We are here for a week and I will be talking with the BH sales guy on Monday and ask these very questions.

Till then...

P.S.

I'm making a list of questions to ask...the ones posted here will be asked.  If you have more please ask them before Monday at 9 am PDT and I will incorporate them.


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## Elsway (May 20, 2007)

Back in December, Bellehavens announced that they had received an equity investment from Hunt Realty Corporation (owned by billionaire Ray Hunt) and Sentry Financial.  They did not disclose the exact investment amount.

I went searching and found the information.  The investment was $5 million.

http://www.mwcn.org/dealflow/DealFlowBook2006-small.pdf?PHPSESSID=f2f9efe5c04fe5169f4d0fec25e48ad5

The investment seems to have been entirely growth capital.  There is no indication that any of the money went to the venture capital firm which founded Bellehavens (Banyan Properties, LLC).

For now, I am going to assume that Banyan has sunk about $5 million into Bellehavens which, combined with the December 2006 investments, suggests that equity investors have sunk about $10 million into Bellehavens (enough to fund the purchase of 5 homes at $2 million each).

All skeptics should consider the fact that these equity investors will lose their entire investment should Bellehavens ever files for chapter 11 bankruptcy.  The "new-money" investors (Hunt and Sentry) have undoubtedly performed a high level of due diligence and have (apparently) concluded that Bellehavens has a sound business plan.

As is apparent thoughout this forum, there are two aspects to the analysis of a destination club:  1) Does it offer enough value to consumers ?, and 2) Is it offering too much value, ergo endangering its long term survival (and our deposits).?

I am still performing due diligence on Bellehavens (I am also looking at Exclusive Resorts and Ultimate Resorts), but I am gradually becoming more comfortable with their (apparently sound) approach to this business.  I think they offer good value, but not so much that the risk of joining is unacceptable.


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## PerryM (May 20, 2007)

*Questions to ask*

Questions to ask:

1)	What’s with the $2.75 M new homes and the old $2 M homes?
2)	MS’s are 8%, the industry average.  Why not half of that since no loans are being serviced?
3)	5 to 1 full memberships to condo, seems low compared to rest of industry.
4)	What’s the difference between BH and UR?
5)	Right now you have 65 members and 11 homes – how fast do you plan to sell new memberships and then acquire new homes?
6)	Right now your residences cost $2 M.  What would the appraised value be on the day you accept and pay for a $2 M home?  Is it $2 M or is there a finders fee in there?
7)	Just who and how do the investors of BH make money and how much?
8) If the Club should go belly up, who get's what in what order?

---- Added questions from later posts -----

9) How are the current dues prices related to higher condo acquisition costs?
10) Please explain how the management company is related to BH and if the members can vote a new company in.


Please add to the list.  I'd like each question to be short enough where I can jot down an answer while the sales guy is on the phone.


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## Elsway (May 20, 2007)

It appears that people are making the assumption that BelleHavens will be increasing the purchase price of new homes in direct proportion to the increase in membership deposits.  This may be the case, eventually, but the numbers tell a more intricate story...

The Helium Report suggests that clubs should be managed for a 70% occupancy rate.  Member-to-home ratios membership are useless measures because plans vary significantly - some memberships entitle members to as few as 14 days, while others entitle members to 40+ days.

A 70% occupancy rate translates into approximately 255 occupied nights per year.  BelleHavens offers a membership play (Adventurer) which includes 30 nights.  So, a 70% occupancy rate equals 8.5 Adventurer memberships.  At current prices ($200,000), 8.5 memberships yields deposit revenue of $1.7 million.  Yet, the company has been buying houses valued at $2 million.  The difference between $1.7 million and $2 million is only possible because the company's equity investors have contributed startup capital.  Equity investors have been subsidizing the purchase of real estate.

Going forward (post June 16), membership deposits will increase to $225,000 (for an Adventurer membership, 30 nights)...and 8.5 memberships will yield $1.912 million per home.  Ergo, Bellehavens can continue to purchase $2 million homes, but the equity investors will be footing less of the bill.

Eventually membership dues will increase further - perhaps to $275K, at which point a 70% occupancy rate translates into $2.337 million.  At this point, presumably, the company's overall portfolio of assets will have appreciated to the point where most of the homes are valued at more than $2 million.  The company will then choose which of the two variables they should manipulate in order to be attractive to new members.  They can either 1) begin to upgrade their homes, purchasing successfully more valuable homes, or 2) lower their target occupancy rates, thereby making accessibility more attractive.  

Persons who are familiar with Exclusive Resorts believe that ER's high occupancy rates offsets many of the advantages associated with their high quality (high cost) real estate portfolio.  i.e. the homes are great, but they aren't usually available when you want them...


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## puffpuff (May 20, 2007)

PerryM said:


> Questions to ask:
> 
> 1)	What’s with the $2.75 M new homes and the old $2 M homes?
> 2)	MS’s are 8%, the industry average.  Why not half of that since no loans are being serviced?
> ...


What right does BH , being 100% owned by members, is able to  "breakloose" from the management contract with banyan ( I am assuming there must be one in place at this time)  and select another management firms if the majority of members of BH decide to do so. ? Does banyan or management team have direct or indirect majority control of BH ?

Is there crossover of management between senior management staff of BH vs Banyan .? ( possible conflict of interest) 

Since BH will be 100% owned by members, will members have majority control  , or who is going to be on board of directors of BH to set policies  and select management team for running of BH in a a way that is dictated by its members? 

Who sets the operating expense and budget on behalf of BH and to what degree that BH members have to be bind by it. 

If the income does not cover the operating expesne of BH, what is goign to happen to the properites? Will they be foreclosed in the worse case senerio?


I am just throwing questions out. Please use your best judgement accordingly.


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## PerryM (May 20, 2007)

My understanding, and I’m on vacation without the BH documentation in front of me, is that:

Traveler $100,000 membership * 20 owners = $2 M
Adventurer $200,000 membership * 10 owners = $2 M
Voyager $300,000 membership * 7 owners = $2.1 M
Explorer $400,000 membership * 5 owners = $2 M

A condo can be made up of any combination of the above but it MUST total $2 M.  (Ok, the $100k difference in Voyager could be a zinger here)

The members who join place their membership fees into an escrow account until $2 M is raised and then they get shares in BH which represent the proportion they are due.  In the mean time they temporarily oversaturate the existing situation when reservations are made.

As to the proportionality of buying more expensive condos and raising the fees – I am guessing they are linked, but I will now add this question to my list:

*9)	How are the current dues prices related to higher condo acquisition costs?*

Puff,
I’m just assuming that the members have no say as to the management company and that a HOA does not exist.  But I will put down another question:

*10)	Please explain how the management company is related to BH and if the members can vote a new company in.*

*11) What documents/information can you supply BEFORE any nondisclosure documents are signed that will help with "Transparency" of your operations?*


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## travelguy (May 21, 2007)

*Not Enough ROI for the Investors*



Elsway said:


> As has been suggested, investors in Bellhavens expect a return on their investment - and it is not obvious that the company's business plan provides for a return on invested capital.
> 
> Perhaps this link will help demystify the issue:
> 
> ...



I do not believe that this ROI is nearly enough for this type of investor to be playing in this game.  If the BH members really do "own" the properties, the investors are making a huge gamble with no assets to show for it and too great a risk for the mediocre (in the world of VCs) return on their investment!  There must be something else!?


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## travelguy (May 21, 2007)

*Investors, Management & Transparency*



PerryM said:


> *10)	Please explain how the management company is related to BH and if the members can vote a new company in.*



Perry,

More important may be the relationship of the investors of BH (a.k.a. Board of directors) and the management company.  I assume that they may be the same.  Anyway, I would be somewhat concerned if the investor with majority control can change management at will (and possibly the biz model, cost to members, etc.).

Your question # 11 should be about "Transparency".  Are they willing to provide the documents you need to do the responsible due diligence for this type of investment?

I still haven't seen anyone post if they have received the BH P&L, Balance sheet, cash flow statement, tax returns and projections for the next 3-10 years (including cash flow projection).  

Also important is the tax strategy that BH uses in relation to IRS codes and the members portion (benefits AND liability) since the members "own" the properties.  I'm not a tax attorney but know that this is a huge issue and High Country Club fully disclosed their tax strategy, with accountant and IRS comments, in their investment package.  Fortunately, this is not something that those of us DC members without property equity have to worry about!


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## PerryM (May 21, 2007)

*Smaller bites..*



travelguy said:


> Perry,
> 
> More important may be the relationship of the investors of BH (a.k.a. Board of directors) and the management company.  I assume that they may be the same.  Anyway, I would be somewhat concerned if the investor with majority control can change management at will (and possibly the biz model, cost to members, etc.).
> 
> ...



How can I break "Transparency" down to a few simple questions?

To me Transparency has been the mortgages that must be serviced and who gets first dibs the any assets.  In this case that would be the arrangement of who gets what in what order - a question I am already going to ask.

Beyond that the business plan is just a "Wish List" of things to do.  I guess I could get the P&L and minutes of official meetings if they exist.

So I need a few questions that would be answered in a few sentences to get anything from those questions.  I will ask what documents are provided with the $3k deposit but undoubtedly non disclosure documents are signed to get those.

P.S.
I will add the question:
*#11 What documents/information can you supply BEFORE any nondisclosure documents are signed that will help with "Transparency" of your operations?*


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## travelguy (May 21, 2007)

PerryM said:


> How can I break "Transparency" down to a few simple questions?



Perry,
Sorry I didn't answer in Question form (just kidding )



> To me Transparency has been the mortgages that must be serviced and who gets first dibs the any assets.  In this case that would be the arrangement of who gets what in what order - a question I am already going to ask.
> 
> Beyond that the business plan is just a "Wish List" of things to do.  I guess I could get the P&L and minutes of official meetings if they exist.]



The biz plan tells me a lot about the people I'm about to invest with.  I often find that the math doesn't add up (sometimes literally).  The biz plan tells me if the "plan" has any chance to succeed and if it makes sense.  It also tells me if the company has thought out the problems that make companies fail, like cash flow and exit strategy.  Most importantly, it lets me know if the company has done their own due diligence and if the plan is realistic.  If the biz plan looks suspicious and/or if the management can't answer questions about the plan, *RUN!* 



> So I need a few questions that would be answered in a few sentences to get anything from those questions.  I will ask what documents are provided with the $3k deposit but undoubtedly non disclosure documents are signed to get those.
> 
> P.S.
> I will add the question:
> *#11 What documents/information can you supply BEFORE any nondisclosure documents are signed that will help with "Transparency" of your operations?*



Why wouldn't you sign a NDA?  I wouldn't even consider making this type of cash investment without these docs.  If they won't show you these docs with a NDA, *RUN!*


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## PerryM (May 21, 2007)

*NDA = "Mums the word"*



travelguy said:


> <snip>
> Why wouldn't you sign a NDA?  I wouldn't even consider making this type of cash investment without these docs.  If they won't show you these docs with a NDA, *RUN!*



I have a policy that once I sign a NDA I stop commenting on the subject - I don't want the nuisance lawsuits threatened to stop my further comment on the subject.  So if I ever get to that point I will stop posting on BH.


Business plans seem to come in two flavors - the one the creditors get (the real one) and the one the investors get - one that has the fine print "Subject to change without notice".  Its fun to read business plans but I find that they can taint your view of the offering.  It's just like being bullish on a stock - you can't short it if the opportunity presents itself.  These are just personal views.

The historical, verifiable facts provided by a CPA are really the only facts that can be used to further guess what the future will be like for the firm.  I'm sure the NDA is required to see them.


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## Elsway (May 21, 2007)

travelguy said:


> I do not believe that this ROI is nearly enough for this type of investor to be playing in this game.  If the BH members really do "own" the properties, the investors are making a huge gamble with no assets to show for it and too great a risk for the mediocre (in the world of VCs) return on their investment!  There must be something else!?



According to BH documents, the company can increase annual membership fees at a rate which is up to CPI +5%.  I would assume that operating leverage will kick in and margins will improve.   Management fees, currently 9% of revenue, will probably increase over time.   This is a very high quality cash flow stream - stable growth.

What would you pay for a company that had $2.5 million of net cash flow, growing at CPI+, in perpetuity?  Many would argue that such a company would be worth more than $25mm.  Assuming the equity investors have invested $10mm - and assuming the company is worth $25mm in five years -the equity investors will have earned 150% over five years.  

Over time, I would expect Bellehavens to find additional ways to capture revenues from their clients.  With an affluent, well-traveled clientele - there should be plenty of cross selling opportunities.


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## PerryM (May 21, 2007)

*Door to Door DCs*

I’ve been waiting for a DC that offered “Door to door” vacations*.

* A local limo picks up the family and luggage.

* A personal business jet (one of the new $2 M small ones) flys you to your destination and then a DC owned car, rental car, or limo is standing by. The reverse when going home.

If the DCs got into a Friday, Saturday, and Sunday AM and PM check-in, one jet can handle 6 owners each week.

Now that’s 6-star luxury that a Fractional or Timeshare or Condo-Hotel can’t touch.

* Of course at your destination the DC would have a membership in a private golf course and/or own yachts.

This will happen; there are too many folks with big bucks that want to be treated 1st class on vacation and will gladly pay for all of this.

P.S.
All of this is possible if they get away from Days of usage to Points.  A Points Club can handle this with no problem - you buy the points you need and spend them how you see fit.  Ownership of assets would be paramount here.

P.P.S.
We are on vacation in Las Vegas this week.  It is embarrassing to fly now.  Standing in line at the airport, with my shoes and belt in the plastic bucket has me wondering when will someone treat me with some respect on vacation - my government sure doesn't.

Our flight took off at 8 AM and we were at the airport at 6 AM parking the car a mile away, taking a run down bus to the airport, hauling the luggage to a Kiosk to wait for the folks ahead of me trying to figure out how to check in.  The shuffling in lines, paying double for 1st class service only to get a breakfast that costs me $600 for the both of us.

I get no respect.


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## smbrannan (May 21, 2007)

Assuming PerryM is right and BH is the best DC option on the market at the moment.

Is this a good time to buy into luxury real estate?  Sitting up here in Canada and reading about the potential bursting of the US real estate bubble makes me worry about timing of an investment now.


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## PerryM (May 21, 2007)

*New highs are already here...*

I don’t believe a thing the Drive-By Media says anymore – they are politically driven to destroy our country – why; I have no idea.

I just did a Zillow search of our home in St. Louis and in the last month we are now tied for all time highs of our home.  St. Louis is not a hot bed of real estate growth – it follow the US average.  If I put up the curve of the our zip code, and Missouri we are now at all time highs.  Only the US market has yet to finish it’s “Pause” and start to make all time highs.

I’ve already predicted the resort real estate market will come roaring back and break all records by year’s end, 12 months for the entire country.  The Drive-Bys will continue to show negative stories and ignore what’s really happening.

If you want to wait a year and then jump in go right ahead.  A 15% potential increase in real estate in resort areas is your only penalty.

Don’t rely on me or the Drive-By Media – use Zillow and figure this out yourself for your situation and level of comfort.


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## Elsway (May 21, 2007)

Very few people will argue that the U.S. is not in the midst of a correction in real estate values.  Real estate markets are local, however, and some markets are fairing much better than others.  No one knows exactly how long the correction will last, how far prices will fall, or when they will recover.

Relating this sub-topic to the Bellehavens discussion:  Bellehavens has at least a couple of factors which mitigate the risk of a steep decline in property values:  1) they own their homes, debt free (we all know how leverage can magnify the effects of a decline in property value), and 2) they are adding properties at a fairly rapid pace (doubling in size, from 11 to 22 properties in the near future) - presumably, the properties which are being added reflect the concurrent softness in the market, and are priced at reasonable (perhaps "bargain") levels.


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## PerryM (May 21, 2007)

*Black holes...*

My main “rub” with the DC industry (not BH) is that they pretend to be offering real estate when in fact they are simply allowing members to buy condos for their investors and then to pay rent to them.

This is false advertising, and on an industry wide basis.  I know it’s not a flat out lie, but it is a deception – you the DC member own nothing and pay rent.  This is the nursing home model – you “Buy” your condo, use it until you die, and your estate gets back a portion of the purchase price.  You pay rent while occupying that condo/unit.

I wish the DC industry stopped pretending that real estate is involved with DC membership – it’s not.  It's more in line with Disney timeshares - Right To Use with no residual value.

The secondary “rub” is the out of control use of leveraging – if something small should impact them they could find themselves in a real mess – no new members signing up, so existing owners are locked in and MFs that can’t handle the debt servicing.

Leveraging has a horrible mirror image – it can quickly destroy the investment.  The entire industry has set itself up for a possible implosion – just like the US stock market did leading up to the crash of 1929.  The US government felt it was perfectly ok for stock market “investors” to put up only 5% cash and margin/leverage 95%.  Uncle Sam sat back on that one, will it sit by on this one?  Of course they will.

There is no “Magic Bullet” that could save them – just one club near bankruptcy buying another club at bankruptcy.  NO consumer laws to protect the members just the investors and creditors.  A cascading failure could turn the entire DC into a black hole that sucks up even BH.

I don't think that the DC industry depicts these cases.


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## smbrannan (May 21, 2007)

When you terminate your membership/ownership @ 90% of the current price, what happens to the other 10%?

I see two possibilities:

a) the mgmt company collects it as profit, or 

b) it stay in the club for the benefit of the remaining members.


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## Elsway (May 21, 2007)

smbrannan said:


> When you terminate your membership/ownership @ 90% of the current price, what happens to the other 10%?
> 
> I see two possibilities:
> 
> ...



The 10% covers sales and marketing costs.   Without sales and marketing, these clubs could not exist.  And without resale incentives, we would have no way of getting our deposits back (given the 3 in 1 out policy for deposit refunds).

Ultimate Resorts budgets their sales and marketing expense at 20% of deposit revenue.  Another area where BH seems to excel.


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## travelguy (May 21, 2007)

*Wisdom vs. Voice?*



PerryM said:


> I have a policy that once I sign a NDA I stop commenting on the subject - I don't want the nuisance lawsuits threatened to stop my further comment on the subject.  So if I ever get to that point I will stop posting on BH.
> 
> 
> Business plans seem to come in two flavors - the one the creditors get (the real one) and the one the investors get - one that has the fine print "Subject to change without notice".  Its fun to read business plans but I find that they can taint your view of the offering.  It's just like being bullish on a stock - you can't short it if the opportunity presents itself.  These are just personal views.
> ...



Perry,
Are you saying that you are willing to risk making a $100K investment without signing a NDA and looking at the hard numbers just so you can still post on the net?  

If so, you get the prize for the most dedicated TUG poster ever!!


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## PerryM (May 21, 2007)

travelguy said:


> Perry,
> Are you saying that you are willing to risk making a $100K investment without signing a NDA and looking at the hard numbers just so you can still post on the net?
> 
> If so, you get the prize for the most dedicated TUG poster ever!!



No, of course not.

What I am saying is that I will attempt to get as much info from public sources as possible and then if I make it thru that info sign the NDA.  But once I do, I stop posting about BH - all together.  I will comment on our experience but facts and figures I will defer to others.  That's how I handle NDA and don't get into trouble.


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## vineyarder (May 22, 2007)

> My main “rub” with the DC industry (not BH) is that they pretend to be offering real estate when in fact they are simply allowing members to buy condos for their investors and then to pay rent to them.
> 
> This is false advertising, and on an industry wide basis. I know it’s not a flat out lie, but it is a deception – you the DC member own nothing and pay rent. This is the nursing home model – you “Buy” your condo, use it until you die, and your estate gets back a portion of the purchase price. You pay rent while occupying that condo/unit.
> 
> I wish the DC industry stopped pretending that real estate is involved with DC membership – it’s not. It's more in line with Disney timeshares - Right To Use with no residual value.



I don't think that this is true; I bought a membership in Private Escapes Platinum, and they were quite clear that what I was buying was a 'right to use' the properties.  I did not buy it thinking that it was an investment, but more on the lines of 'prepaid vacations', so in that way, yes, it is more like a supercharged timeshare.  I bought so that I could have access to a collection of $1.5 - $2M homes without the hassles of vacation home ownership or the hassles, uncertainty, and inconsistent quality associated with renting private homes.  Previously, at one point I owned 5 homes, and the hassle factor was incredible; it seemed that I was constantly on the phone with the caretakers, dealing with broken water heaters, etc.  I am more than happy to get no 'ROI' on my deposit; I simply included that lost opportunity cost in my calculations of per night costs in determining whether it made sense to me.



> The secondary “rub” is the out of control use of leveraging – if something small should impact them they could find themselves in a real mess – no new members signing up, so existing owners are locked in and MFs that can’t handle the debt servicing.



I don't know about other clubs, but PE buys its properties 50% down, 50% mortgaged, so the leveraging is not 'out of control'; there is plenty of room for huge declines in property values before deposits are in jeopardy... but since you (Perry) think that "the resort real estate market will come roaring back and break all records by year’s end"  that shouldn't be a concern!


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## Elsway (May 22, 2007)

PerryM said:


> I’ve been waiting for a DC that offered “Door to door” vacations*.
> 
> * A local limo picks up the family and luggage.
> 
> ...



I don't think Destination Clubs want to increase their exposure to physically depreciating assets such as vehicles.

One thing I have noticed is that a few of the clubs have partnered with credit card companies and offer members the advantage of using their card to cover membershi deposits and annual dues.  I am aware of at least two clubs that offer double credit card reward points.  Given that deposits range above $200+, you will have plenty of reward points which you can exchange for air travel, rental cars, etc...  You won't have access to a private jet, but most people won't want to pay the very high prices associated with this privilege.

I am aware of one DC club provides a SUV at each of its U.S. houses - for the use of guests during their stay.

Most of the clubs have concierge services which you can use to arrange for customized travel, etc...


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## smbrannan (May 22, 2007)

PerryM said:


> I’ve been waiting for a DC that offered “Door to door” vacations*.
> 
> * A local limo picks up the family and luggage.
> 
> * A personal business jet (one of the new $2 M small ones) flys you to your destination and then a DC owned car, rental car, or limo is standing by. The reverse when going home.



It's already here, or damn close to - yellowstoneclubworld.com


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## Steamboat Bill (May 22, 2007)

Just for fun...I logged into VRBO to see what rental homes for typical DC locations are.

Quite honestly, I found the web site poorly laid out and I grew tired of scrolling thru hundreds of offers to find the gem.

DC certainly eliminate that hassle.

Also, several DC offer private jet charters, yachts, door to door service, private massages, etc. But be prepared to pay dearly for it!!!


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## PerryM (May 22, 2007)

Steamboat Bill said:


> Just for fun...I logged into VRBO to see what rental homes for typical DC locations are.
> 
> Quite honestly, I found the web site poorly laid out and I grew tired of scrolling thru hundreds of offers to find the gem.
> 
> ...



VRBO was sold by the original founders about 6 months ago.  They did what many successful start up companies do - sit on their butts and wait for someone to buy them out.

That's happened and hopefully the new owners will spend a few bucks and make it a fun place to use.  The existing setup uses 10+ year old programming techniques that were used with vacuum tube computers.

P.S.
I'm just guessing, and that's all it is, but comparable DC units can be found for a fraction of the MF's paid to the DC.  I did an in-depth comparison to timeshares about 3 years ago and I was amazed what you could get for bargain-basement prices.


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## vineyarder (May 23, 2007)

*DC Per night cost vs. Comparable Rentals*



> P.S.
> I'm just guessing, and that's all it is, but comparable DC units can be found for a fraction of the MF's paid to the DC.



I looked at rental homes vs. DCs before joining; here's what I found... the per night cost for the DC is based upon my actual numbers, with 42 nts/yr usage and the deposit I paid, dues I pay, etc., so the rate would be higher for someone joining now, vs. 2 years ago...

Turks & Caicos

PE Platinum = 3 bedroom oceanfront estate villa at the Somerset (http://www.thesomerset.com/); I'm going there over Xmas - rate for similar rental unit = $2700/nt; my total PE cost = $501 per night.

Abaco

PE Platinum = 3 bedroom oceanview Cliff House at Ritz-Carlton Winding Bay (these are now selling for 2.7M incl tax); rents for $2400/nt, my total PE cost $501 per night.

NYC

Trump Tower, large Park view 1 bedroom (~1000 sq ft); rents for $1710 per night, PE cost $501 per night.

These are the only 3 properties where the identical units can be rented, but similar cost difefrentials exist for most of the other properties, albeit with the additional uncertainty of the quality of the rental property.  But based on these differentials, the cost savings are incredible; at least for an early adopter & high user; savings of up to $2200 PER NIGHT or >$15K per week!  Using my travel patterns of about 42 nights usage per year, the savings adds up quickly; if we use the average differential of $1770 per night over the course of the year, I've saved $74,000 vs. renting the same accomodations!  So even if we take a doomsday approach and assume that the entire DC industry will implode (as you suggest), after 2.5 years of high usage, even if I lost my whole deposit, I would still come out slightly ahead; and if it took 5 years and then I lost my whole deposit, I'd be ahead by over $200K!  Of course, most people might not stay in a comparable rental; they'd rent something much less opulent... But for those of us who do prefer to stay in very high-end accomodations, the right DC can be a great deal, albeit not an investment.


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## PerryM (May 23, 2007)

vineyarder said:


> I looked at rental homes vs. DCs before joining; here's what I found... the per night cost for the DC is based upon my actual numbers, with 42 nts/yr usage and the deposit I paid, dues I pay, etc., so the rate would be higher for someone joining now, vs. 2 years ago...
> 
> Turks & Caicos
> 
> ...




Thanks for the input.

Does the cost per night of the DC include a Lost Opportunity Cost?  This is where it must be accounted for - when you compare renting versus tieing up that money for the same period of time.

Or, as I like better, take the same membership fee and assume you could pull out 5% per year from the DOW, account for the 20% loss on the membership fee and add in the yearly MF plus 5% additional on it.

Then figure out how many vacations you can take for free by not buying that DC membership.  After that, you can compare straight renting versus membership in a DC.

Thanks again,


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## vineyarder (May 23, 2007)

*Yup, lost opportunity costs included in analysis*



> Does the cost per night of the DC include a Lost Opportunity Cost? This is where it must be accounted for - when you compare renting versus tieing up that money for the same period of time.
> 
> Or, as I like better, take the same membership fee and assume you could pull out 5% per year from the DOW, account for the 20% loss on the membership fee and add in the yearly MF plus 5% additional on it.



Yes, my per night cost does includes lost opportunity cost, using the 5% interest figure that Bill used in his analysis.  I did not include an amortization of 20% of the membership deposit, as my deposit is 100% refundable, based upon when I joined... I used my actual deposit and my actual dues structure, which are based on when I joined, so as I mentioned, the per night cost for someone joining now would be higher...



> Then figure out how many vacations you can take for free by not buying that DC membership. After that, you can compare straight renting versus membership in a DC.



That's just another way of skinning the cat, but OK; If I didn't join PE and I just spent my MF + 5% interest on the deposit each year, it would pay for 5.6nights in a similar home at the Somerset on Turks & Caicos each year (vs 42 nights or more within the destination club).  Even if I spent the deposit, rather than just using the interest (i.e. I assumed that it was 100% certain that membership deposits in DCs will never be returned, as they will all go belly-up), I would have enough to pay for my 42 nights the first year, 31 nights the 2nd year, and then less than 6 nights a year thereafter.  So if I get 2 years use at 42 nights a year, then lose my deposit entirely, I am still ahead of renting by 11 nights worth.  If my DC went belly-up after 4 years, I would have gotten 97 more nights in comparable accomodations over 4 years vs. just renting, even spending the entire deposit!  So even if the deposit is 'thrown-away' as you suggest, and the time-frame is quite short (i.e. 2 - 4 years), the numbers are still favorable if you use it enough!


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## PerryM (May 23, 2007)

*Great, but why?*



vineyarder said:


> Yes, my per night cost does includes lost opportunity cost, using the 5% interest figure that Bill used in his analysis.  I did not include an amortization of 20% of the membership deposit, as my deposit is 100% refundable, based upon when I joined... I used my actual deposit and my actual dues structure, which are based on when I joined, so as I mentioned, the per night cost for someone joining now would be higher...
> 
> 
> 
> That's just another way of skinning the cat, but OK; If I didn't join PE and I just spent my MF + 5% interest on the deposit each year, it would pay for 5.6nights in a similar home at the Somerset on Turks & Caicos each year (vs 42 nights or more within the destination club).  Even if I spent the deposit, rather than just using the interest (i.e. I assumed that it was 100% certain that membership deposits in DCs will never be returned, as they will all go belly-up), I would have enough to pay for my 42 nights the first year, 31 nights the 2nd year, and then less than 6 nights a year thereafter.  So if I get 2 years use at 42 nights a year, then lose my deposit entirely, I am still ahead of renting by 11 nights worth.  If my DC went belly-up after 4 years, I would have gotten 97 more nights in comparable accomodations over 4 years vs. just renting, even spending the entire deposit!  So even if the deposit is 'thrown-away' as you suggest, and the time-frame is quite short (i.e. 2 - 4 years), the numbers are still favorable if you use it enough!




Great!

Now, how can we find out how the investors of the DC make their money.  If we can demonstrate where the investors make a nice fat profit and the renters (DC members) enjoy discounted rental rates, then we can better understand how this alliance works.


If there is a symbiotic relationship that makes sense (cents?) Then its up to the DC management not to blow the working relationship and make both parties winners.

But, if the DCs rent for much less than similar same whole-ownership units why are the investors throwing away that money?  Or, why not have a DC where you buy a membership and not use it and they just send you a fat check every month - your part of the rentals on VRBO?  I keep seeing things that just don't make any sense.


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## Steamboat Bill (May 23, 2007)

I think the way "vineyarder" justifies his decision to join a destination club mirrors the same opinions of most DC members (including myself).

Joining a destination club is not necessarily the "best use" of money as many people can do better with other vehicles like stocks, bonds, REITS, business developments, etc. However, joining a destination club fills a certain need for families that can afford the cost....a reliable, hassle-free method to travel on family vacations at very nice locations.

Many DC members have had vacation homes that they bought with the dream of visiting it often and getting a nice return on investment. My father bought a water front home in Duck Key, Florida for about $80k 30 years ago and it is now worth about $1.8m and our family has spend MANY days there. I could have bought a house in the keys and continued the family tradition, but I really wanted variety of locations and quite honestly want to feel like a guest while I am on vacation. When I travel, I am not concerned with things that may need fixing, painting, repairs, cleaning, etc and simply relax and enjoy the trip. That alone is worth "a lot" to me.

I have tried renting homes on the internet including vrbo and others....but finding the "gems" is not as easy as it sounds.

I have also traded timeshares via II and that is not as easy during prime times.

The one thing I can say about Destination Clubs (with my experience as a member limited to HCC) is getting a reservation at the location and time I want is very painless....let me repeat that....very painless! 

Thus, joining a destination club, is part of a biger picture, the enjoyment of life, family bonding, and making smart money management decisions. Sure, you can save money staying in a Motel 6, but joining a destination club saves you money as compared to reserving 2-3 hotels rooms at the Ritz or Four seasons. In fact, joining a destination club is probably cheaper than buying most high end timeshares when you compare the cost per night and factor in the size of the units.


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## travelguy (May 23, 2007)

Steamboat Bill said:


> Joining a destination club is not necessarily the "best use" of money as many people can do better with other vehicles like stocks, bonds, REITS, business developments, etc. However, joining a destination club fills a certain need for families that can afford the cost....a reliable, hassle-free method to travel on family vacations at very nice locations.



I absolutely agree.  This is why I believe a great strategy is to find the Destination Club that best meets your TRAVEL needs with the minimum investment. (This has meant a DC without Equity participation thus far).  Take any cash left over from this purchase and make the best "real-world" investment to get a greater ROI than a travel property investment.




> I have tried renting homes on the internet including vrbo and others....but finding the "gems" is not as easy as it sounds.
> 
> I have also traded timeshares via II and that is not as easy during prime times.
> 
> ...



Ditto!!  Well said.


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## PerryM (May 29, 2007)

*BHs answers to my questions*

A while back I submitted the following questions I finally got some answers:

*1) New condos will average $2.75 M and old ones at $2 M – how does BH handle this?*
A) Going forward we are targeting a value range of $2M to $3M.  We plan to acquire 3 to 5 bedroom residences in primary resort destinations and this range will allow us to spend up when needed.  Members will expect a consistent level of home quality, furnishings and amenities across the portfolio. 

*2) MF’s are 8%, the industry average. Why not half of that since no loans are being serviced?*
A) I’ve found that the majority of the industry is not charging enough in annual dues to cover the fixed and variable costs required to manage a large portfolio of members and homes.  While we don’t have debt service requirements, we are one of the only clubs that budgets for capital reserves and our current level of annual dues are sufficient to operate the Club’s portfolio of residences.  

*3) 5 to 1 full memberships to condo, seems low compared to rest of industry.*
A) Looking at the member to property ratio alone really doesn’t mean anything; you must also look at the total number of days the club provides to members.  In our case, we offer our Explorer Membership that provides 60 days of usage so we require a lower ratio to keep our occupancy level in check.  

*4) What’s the difference between BelleHavens and Ultimate Resorts?*
A) There are several differences, the biggest being our equity model that provides superior asset protection and appreciation potential.  We also provide more flexibility with how our members can use the club e.g. a credit for unused nights, flexible 3rd party usage, a modest fee for additional nights, singe day reservations in the Short Notice Window, etc. I also believe that Ultimate has exposed itself to a significant amount of risk from all of the debt obligations they’ve taken on with the Tanner & Haley acquisition.  

*5) Right now you have 65 members and 11 homes – how fast do you plan to sell new memberships and then acquire new homes?*
A) We’re currently welcoming approximately one new member each week and I anticipate this will continue, if not accelerate as the year progresses.  We plan on adding our next three homes to the portfolio in the next 3-4 months. We are conservatively planning on bringing online one new home each quarter for the next 12 to 18 months.  

*6) Right now your residences cost $2 M. What would the appraised value be on the day you accept and pay for a $2 M home? Is it $2 M or is there a finders fee in there?*
A) Historically, members have been paying $2M for a home valued at $1.7M.  The $300K gross margin is used to cover sales & marketing, repay financing costs, and to provide a 10% to 15% profit to investors.  Once the homes are transferred to the Club, they are owned free of all the debt and any appreciation accrues to the Club and its underlying members.

*7) Just who and how do the investors of BH make money and how much?*
A) See the attached overview for more information.  The business model is based on a margin that earned when real estate is sold to the Club and via a management fee that is built into the annual dues. 

*8) If the Club should go belly up, who get's what in what order?*
A) Because BelleHavens owns all of the real estate free of the debt, the members are the first and only people in line to receive the proceeds.  

*9) How are the current dues prices related to higher condo acquisition costs?*
A) The current dues are budgeted appropriately to manage and maintain a portfolio of $2M residences.  The annual dues are anticipated to increase for incoming members as the value of real estate continues to escalate.

*10) Please explain how the management company is related to BH and if the members can vote a new company in.*
A) BelleHavens, Inc. and Banyan Properties, LLC are two separate companies.  There is a legally binding contract in place that outlines Banyan Properties’ fiduciary responsibilities as the Club’s managers but Banyan can be replaced based on a member vote.


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## puffpuff (May 29, 2007)

PerryM said:


> A while back I submitted the following questions I finally got some answers:
> 
> *1) New condos will average $2.75 M and old ones at $2 M – how does BH handle this?*
> A) Going forward we are targeting a value range of $2M to $3M.  We plan to acquire 3 to 5 bedroom residences in primary resort destinations and this range will allow us to spend up when needed.  Members will expect a consistent level of home quality, furnishings and amenities across the portfolio.
> ...


2. The amount of reserve set aside is very small compare to the 8% that they charge.

4. Ultimate bought over the entire Tanner and Halley portfolio at 40 % below market. Its a steal. On top of they inherited 650 members that are bound for the next 8 years so as not to losse their initial fee) . The monthly cash flow is very strong as a result of the 800+ members currently of MF coming in. I see UR financae as very strong. with debt ratio under 40% as a result of these purcahses. Ultimate also gives you 80% of then current membership due because of the tremendous high book value and equity they have built up as a result of this purchase. Most importantly, they dont have to front marketing for 600 members, and at about $5000 a crack, it works out to $3000000 already.I see UR in a sweet spot at this time,and I think anyone interested to join a DC should consider UR seriously at this time because of the value offered relative to other DCs.


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## Bourne (May 29, 2007)

I still see an issue with Point 1 & 6. 

Long story short, lets assume 10 new members join. 

1. Based on BH's business model, the properties are already in the hole by 15% when they are transferred to the club and would historically take ~3-4 years to break even. ( 5% annual growth and sale/closing costs included )

2. If the new members decide to cash on to the profit and try to leave, BH would have to cough up the money that does not exist in the first place. Atleast, they are in the hole by 15% of 2.75 mil i.e. 410K

3. However,if the existing members try to cash out, BH would still have to honor the current price point i.e. the one based on $2.75 mil. *However, the underlying property based on the equity model is still only worth $1.7 mil*. Do the math.

IMHO, BH is trying to promise too much and is moving into unchartered territory. The new business model is way more riskier than any DC out there. It would not be a DC where I would put my money into.


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## PerryM (May 29, 2007)

Bourne said:


> I still see an issue with Point 1 & 6.
> 
> Long story short, lets assume 10 new members join.
> 
> ...



I'm assuming that the old properties have appreciated at 5% a year for the past 2 years and what was $1.7 M is now $1.9 M.  Add another 2 years (minimum time that must be spent in club) and you get $2.1 M and close to a break even on the old $2 M condos.

The new ones coming in at $2.75 will be bought for 85% of that or $2.3 M and after 2 years are $2.6 M.

I just don't get a feeling of impending doom here.  Just a company trying to be forthright on how they operate and back up what they offer with assets.

They offer 90% of the current membership fee to exit and that would be 90% of the unit or $2.5 M.  Additionally it's 3 in/1 out so there should be no problems that I can see.


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## Bourne (May 29, 2007)

I do not see an issue with the 3-1 out policy. It is even better than the 2-1 policy that is a standard in the industry. 

However, the issue I have is with the 90% of existing price ($2.75M) i.e. 2.5 mil as an exit policy. How can you factor in a potential payout of $2.5 mil on a property that you bought a few months back for $2.0 mil which infact costs $1.7 mil. Remember, BH is a equity based model. 

All other DC's pay out less than what they took in. Or an amount lesser than the underlying value. BH is promising *more* than the underlying value. That is my major concern. 

The potential payout may cloud one's judgement but the risk is greater.  It is not at the same level as T&H but it is more riskier than any DC plan out there.


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## Steamboat Bill (May 30, 2007)

PerryM said:


> I also believe that Ultimate has exposed itself to a significant amount of risk from all of the debt obligations they’ve taken on with the Tanner & Haley acquisition.



I hope he is WRONG on that predication. Unfortunately, ER passed on buying T&H assets as they could not figure out how to make it work.


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## puffpuff (May 30, 2007)

One of the reasons to pass is that ER can no longer buiy properties with less than 10 per location given their size. Er is becoming a developer, charging retail price for homes for membership that cost them developers price.  A sweet spot for ER owners.


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## vineyarder (May 30, 2007)

> ER passed on buying T&H assets as they could not figure out how to make it work.



PE came to the same conclusion; couldn't make it work financially.


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## puffpuff (May 30, 2007)

vineyarder said:


> PE came to the same conclusion; couldn't make it work financially.


it should be a good fit for PE. They already have a low end club, and UR completment their mid and high end. That is the direction they are going anyway,and in fact , their model is a direct copy from T and H. 
Any thoughts?


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## Elsway (May 30, 2007)

> 6) Right now your residences cost $2 M. What would the appraised value be on the day you accept and pay for a $2 M home? Is it $2 M or is there a finders fee in there?
> A) Historically, members have been paying $2M for a home valued at $1.7M. The $300K gross margin is used to cover sales & marketing, repay financing costs, and to provide a 10% to 15% profit to investors. Once the homes are transferred to the Club, they are owned free of all the debt and any appreciation accrues to the Club and its underlying members.



Wow!  This is a major flaw in the Bellehavens model.  The *only* flaw, I believe.

I was very comfortable with the idea that the management company was retaining a portion of annual fees as profit.  Also comfortable with the 10% of membership deposits which is retained for marketing.  But, an incremental 15% profit as a finders fee???

Profits too high.  Membership deposits are undercollateralized.

I am scheduled to speak with BH tomorrow.  Will investigate further...


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## travelguy (May 30, 2007)

Elsway said:


> Wow!  This is a major flaw in the Bellehavens model.  The *only* flaw, I believe.
> 
> I was very comfortable with the idea that the management company was retaining a portion of annual fees as profit.  Also comfortable with the 10% of membership deposits which is retained for marketing.  But, an incremental 15% profit as a finders fee???
> 
> ...



I believe a good question is if the "15% incremental profit as a finders fee" is in addition to any in-house brokerage commission from the property purchase.


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## puffpuff (May 30, 2007)

Elsway said:


> Wow!  This is a major flaw in the Bellehavens model.  The *only* flaw, I believe.
> 
> I was very comfortable with the idea that the management company was retaining a portion of annual fees as profit.  Also comfortable with the 10% of membership deposits which is retained for marketing.  But, an incremental 15% profit as a finders fee???
> 
> ...


Given the fact that the properties are debt free, their MF is similar in quantum as other non-equity club, it means that the management company is retaining a very large portion of the MF as profit .  . Yes part of the MF goes to a pool for upkeep. YOu may want to ask them the exact percentage and determine whether whether the retained amount is resonsable or not for services rendered.


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## Bourne (May 30, 2007)

Elsway said:


> Wow!  This is a major flaw in the Bellehavens model.  The *only* flaw, I believe.
> 
> I was very comfortable with the idea that the management company was retaining a portion of annual fees as profit.  Also comfortable with the 10% of membership deposits which is retained for marketing.  But, an incremental 15% profit as a finders fee???
> 
> ...




Another good question to ask would be the collateral they maintain for a potential payout to *all existing members* after the increase in cost of membership becomes a reality.


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## PerryM (May 31, 2007)

Bourne said:


> Another good question to ask would be the collateral they maintain for a potential payout to *all existing members* after the increase in cost of membership becomes a reality.



With a 3 in/1 out I don't know if they have to worry.


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## Bourne (Jun 1, 2007)

So do none of the other DC with different business model. 

If a 3-1 works for BH, I cannot see how a 2-1 would not work for other DCs too. If this exit criteria was the major factor in preventing a DC from going bust, no DC can technically go belly up.


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## NeilGoBlue (Jun 3, 2007)

I'm new to the board and a proud almost member of Bellehavens.  (they have my deposit as of a week ago, but I haven't officially joined, yet)

To reply to the recent posts:

Bellehavens has a winddown plan.  I can't remember the exact criteria, but if a certain percent of the members are on the resignation list, then the 'wind down plan' is implemented and Bellehavens sells off all properties, they take a 10% management fee for doing so, and all other proceeds minus selling expenses are returned to the members.

Neil


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## Elsway (Jun 3, 2007)

NeilGoBlue said:


> I'm new to the board and a proud almost member of Bellehavens.  (they have my deposit as of a week ago, but I haven't officially joined, yet)
> 
> To reply to the recent posts:
> 
> ...



I could be wrong on the details, but I believe Belle Havens winddown plan is structured so that members are asked to vote for or against a winddown if 20% of the membership is on the member resignation list (i.e. resigned membership but deposit not yet refunded).

So, if BH has 100 members and 20 members are on the resignation list the 100 members will vote on a winddown.  If 75% of membership (75 members) votes in favor of a winddown, the properties are liquidated and proceeds are returned to the members on a pro rata basis.

This does provide a mechanism whereby BH could fail (members lose confidence in the club's solvency... or are otherwise dissatisfied).  On the other hand, this structure appears to protect a portion of the membership deposits.  (Assuming proper financial transparency and the nonexitence of fraud.)


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## Steamboat Bill (Jun 3, 2007)

NeilGoBlue said:


> I'm new to the board and a proud almost member of Bellehavens.  (they have my deposit as of a week ago, but I haven't officially joined, yet)



Neil...welcome to TUG..we are lookin forward to your BelleHavens review posts.


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## PerryM (Jun 3, 2007)

NeilGoBlue said:


> I'm new to the board and a proud almost member of Bellehavens.  (they have my deposit as of a week ago, but I haven't officially joined, yet)
> 
> To reply to the recent posts:
> 
> ...




Congrats on your upcoming purchase!

If you can get the wind-down procedure and it's not protected by secrecy documents I'd love to see the details.


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## NeilGoBlue (Jun 3, 2007)

I don't think I signed a NDA.. I'll check, and if I didn't I'll post the details...

Neil


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## NeilGoBlue (Jun 3, 2007)

Elsway,

That sounds right, if I'm allowed to share details, I will check the agreement and post it..


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## Kagehitokiri (Jul 17, 2007)

there are a number of equity / equity optional destination clubs now, but only 1 has no annual fees, making it truly "free".


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## oldkey (Jul 17, 2007)

*There are "no free lunches"*

....sorry...couldn't help myself.


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## Kagehitokiri (Jul 18, 2007)

the only "cost" is the lost interest from a higher return investment. the club anticipates 60-100% return (upon "maturity" after 10 years) depending on what price you purchase at.


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## huestous (Jul 22, 2007)

Don't believe that I've ever found myself in disagreement with Perry's analyses before, but this DC is far from free.

Minor calculation error aside, there are three problems with the analysis:
1.  Inflation was neglected.  The mfs (annual dues) are $9000 today.  That number will not remain static for one year, much less nine.

2.  The cost of money was hand-waved away.  This is most unPerry-like, as neglecting this cost runs counter to other valuation models he has described.  

3.  The costs have already increased as additional properties have been added.  The Traveler membership is currently $125000 with $9000 annual fees, up from $100000/$8500 the date of the initial post.

Assuming a static 5% cost of money, the $125000 deposit costs $6250 per year.  Further assume 3.5% inflation on the initial annual dues of $9000.  The annual cost for the 15 days of use that this membership allows is therefore $15250 in year 1, $15565 in year 2, ... and $18101 in year 9.  The total cumulative annual costs in year 1 through year 9 is $149,566, exclusive of the $125,000 deposit.

Assuming you opt out when the membership deposit has increased to $155,000, you will receive $139,500 (90% of the current membership cost).  This is a net gain of $139,500 - $125,000 = $14,500, which is less than the annual cost during the first year of ownership.

There is indeed no such thing as a free lunch, or a free DC.

The minor calculation error in the initial post was the assumption that when purchasing at $100,000 and selling at $155,000, that 90% of the $55,000 difference ($49,500) is the net gain to the purchaser.  The net gain is actually 90% x 155,000 - 100,000 = $39,500.  Considerably more than at the current higher pricing, almost 3 years of annual fees using the modeling summarized above with the $100,000/$8,500 costs valid at the time of the initial post.


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## Kagehitokiri (Jul 22, 2007)

this is what i was referring to in my last 2 posts, the first equity DC with no annual fees

Worldwide Private Residences LP
http://www.worldwideprivateresidences.net/
http://www.sherpareport.com/index2.php?option=com_content&do_pdf=1&id=117


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## PerryM (Jul 22, 2007)

huestous said:


> Don't believe that I've ever found myself in disagreement with Perry's analyses before, but this DC is far from free.
> 
> Minor calculation error aside, there are three problems with the analysis:
> 1.  Inflation was neglected.  The mfs (annual dues) are $9000 today.  That number will not remain static for one year, much less nine.
> ...




I'll have to dust off the abacus and go back over my analysis.  A few points:

1) Lost opportunity costs
I've never been a big proponent of lost opportunity costs since I never use them myself.  If I buy something I never consider keeping the money in the bank and somehow enjoying 5% of it as a replacement to whatever I'm investing in.  Some folks say they do - I've just never bumped into someone who really does thiS.

2) Inflation:
Inflation is another one of those things that everyone talks about but really never seems to rear it's ugly head.  I assume a historic average of 3% in some of my calculations but since I invest in the DJIA (Diamond Trusts DIA) which generate 13.3% each year on the average I never feel the effects of inflation.  If your job doesn't keep up with inflation or your fixed income streams don't then you do have a problem.  I don't assume everyone has that problem - that's just my experience with inflation.  (A rising tide lifts all boats - inflation is a measure of human greed and it affects everything so it really nets out).


So, in many of my analysis I will pay some lip service to the 2 above items but I never seem to be bothered by them and I don't think most folks base car purchases or 2nd home purchases or other large luxury purchases based upon them.

However, if it means a lot to someone, go ahead and worry about them.


I really posted this Free DC with tongue-n-cheek and just did it to alert other folks of something they might find interesting.


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