# This Destination Club has TUG Specials!



## PerryM (Jul 19, 2006)

I’ve followed a number of Private Residence Clubs ,their new title is Destination Clubs (DCs) for 3 years now and normally they are $250,000 - $500,000 per membership and MFs that will make you want to cry.  Well there is a new one that’s geared for timeshare folks and they even have a few special features for TUG members!  These DCs grow in price with the real estate in the hot areas they are located.  Expect membership fees to increase 40% and more a year!

The DC is called *High Country Club *link: http://www.highcountryclub.com/

I stumbled on them thru the Helium Report – a web site dedicated to DCs, Link: http://www.heliumreport.com/

*In a nutshell:*
A DC offers you access to private homes and condos and is the next step above a timeshare but below whole ownership.  DCs offer many of the same privileges as a timeshare but with 6-star accommodations in a more private setting.  Some folks may find this refreshing and for large families these residences typically have 3 or 4 bedrooms.  The residences cost a minimum of $1+ M each and have MFs that are on par with high end timeshares (Westin and Marriotts).  You don’t have a deed, you belong to a club – like WorldMark.  You can sell your membership back to the DC for 80% of what you paid any time you want.

You must personally use the residence or a family member 25 years old can take your place (Like a son or daughter).  There is NO renting of the residences and there are 6 – 8 owners needed to pay for the residence.  If you divide $1 M by 8 owners that equal $125,000 which is where most of these clubs start.

There are several levels of membership.  The top one usually gives you about 45 days of reservations per year and lesser memberships give you 21 days.  Many DCs charge extra for holiday usage.

*How a DC functions:*
A group of investors pool money and start the DC by buying 8 – 10 condos/homes.  Then 6 – 8 new members are recruited and their membership dues pay for another residence.  The price of the membership is basically the cost of the new residence divided by 8.  MF’s are typically 6 – 8% of the current membership fee.

All the deeds are held in a master trust and the founders of the company have title to them.  The members are like members in a Point club like WorldMark.

You can sell your membership back to the DC after 2 or more years and typically get 80% back of what you paid.  This is done on a 2 out 1 in basis.  After they sell 2 more memberships you get a check for 80% of your purchase price.

Reservations are handled by phone and internet with 12 month reservations and shorter term too.  Many DCs have more expensive memberships for holiday usage.

If you’ve checked into some of these DCs they typically cost $350,000 - $500,000 with MFs of $15,000 for 6 weeks of usage.

Now don’t get turned off, I the frugal one, would never pay the above and found a DC that is perfectly matched for timeshare owners.


Here is what High Country Club is offering until August 15, 2006 Link: http://www.highcountryclub.com/membership/

High Country offers 3 types of memberships but the two timeshare folks might be interested in are:

•	An *Affiliate membership *gives you 3 weeks of usage per year and costs $20K to join and $4,200 MF per year.  That is a MF of $1,400 for a 3 – 4 bedroom 6-star residence.

•	A *Private membership *gives you 6 weeks of usage and costs $30K to join and $7,200 MF per year.  That is a MF of $1,200 per week.

As you can see, the cost to join is no more than one week at a moderate Marriott.  The MF is right in line with Hawaiian timeshares.

I’ve watched many a DC start up and in the blink of an eye the membership fee is $100K to $200K and the MF is normally 8% of the CURRENT membership fee.  This gets old real quick.

High Country’s MF is fixed when you join and increases based on the CPI + 2%; the CPI was 4% last year so the MF would go up 6%.

*Selling your membership.*
Some DCs require you to stay 2+ years before you can sell your membership.  High Country allows you to sell tomorrow if you wish.  You will get 80% of what you paid for the membership on a 2 in – 1 out basis.  This is a standard for DCs with many DCs require 3 or 4 in before 1 out.  This means that if you notify them a year from now that you want they sell 2 new memberships they cut you a check for 80% of what you paid.  You continue paying MFs until your anniversary or until they sell 2 new memberships.  Imagine a timeshare that did that!


*TUG Special Offers:*
I convinced the folks at High Country that timeshare folks might be interested in their offering.  I informed them that timeshare folks had two points that they needed to address and they did.  Until their next price increase, which is a whopper at August 15, here are special benefits for TUG members:

•	You can buy a membership and NOT pay MF’s for 1 year.  Since timeshare owners are always booked up 12 months out they realized that you could not use their DC and thus are allowing TUG members to buy and not pay MF’s for 12 months.  Of course you can’t use the DC either but you can vacation in your timeshares and lock in a cheap price.

•	You can buy an Affiliate membership and when you decide to use it, you can use for 3 years and then upgrade to a Private membership and pay only $10K more.   With Private membership, you get 3 12 months reservations, one of which is a holiday week and get 3 more weeks of usage (total of 6).  That way folks who have only a few weeks of vacation now can “lock in” a higher membership usage for years down the road.

•	Group & Corporate memberships allow your friends and employees to use the DC.  The same applies here too, lock in the Affiliate membership and have up to 3 year to upgrade to Group & Corporate for today’s difference of $20K.


So, to recap, you can buy an Affiliate membership for $20K, and NOT use it for 1 year and then pay just $4,200 for 3 weeks of usage.  3 years later you can upgrade your membership for $10K, if you want, then get a total of 6 weeks of usage for the current MF which is $7,200 now but that will show 3 years of CIP + 2% increases each year.

High Country’s initial resorts are geared for skiers/snowboarders but have super locations now and more to follow.  Three days before you leave on your vacation they send you a FedEx package with your keys and when you leave just leave keys in a table.  Cabo is the only resort residence and it has a front desk.

Do your research, look at Helium.com and HighCountryClub.com  The salesrep at High Country is Heath Kirschner.


*Things to consider:*
All the DCs out there, but one, give you NO deed or anything tangible for your investment.  Most are $300K - $500K and the risk to me can’t be justified.  With High Country you can start at 20K then later upgrade for an additional $10K.  This is more like it and similar to a WorldMark.  MFs are higher than an average timeshare but in line with 5-star Hawaiian Marriotts and Westins.

*Holiday weeks:*
The Affiliate membership has NO holiday week feature.  You can reserve 2 weeks of usage with 12 month reservations and the third week must be used at 90 days or less.  12 month reservations and 90 day reservations start on a Saturday.

The Private membership allows you to book ONE holiday week per year.  Holiday weeks are the weeks containing federal holidays.  Spring break is 4 weeks in March and are defined two years ahead as to which weeks they are.  Holiday weeks start on a Friday night for 7 nights.  You can book any holiday week you want but then must wait 2 years before booking the same exact holiday week.  E.g. you book Christmas week in Whistler then next year you can book New Years week in Whistler then 4th of July week the year after than somewhere else and then back to Christmas week in Vail or Whistler if you want.

No planned activities:
DCs pride themselves on being private and you check into the residence as you would if you owned the place.  There is no bell captain, no activities coordinator, nor front desk or room service nor phone calls from marketing offering you a $25 coupon to a local restaurant – just a private multi-million dollar home or condo.

*Who the heck is High Country Club?*
First it has 100+ members already – believe it or not that puts them in the top 5 DCs in the country!  They just started and have had only one price increase up to now.  August 15, 2006 is their second one and an increase of 66%.  They are positioning themselves in the realm of top end timeshares.

If High Country Club goes out of business, members would get up to 60% of their membership fee.

This is something that may appeal to some and with the TUG specials makes easing in much easier.  Read the Helium Report and learn, learn, learn.  There is risk here, but you can get in early with less money.


Check out the leader in the DC field, Exclusive Resorts link: http://www.exclusiveresorts.com/ They have 2,000 members and the average condo/home is $3 M.  Membership fee is $395,000 with a MF of $25K for 6 weeks of usage.  There is NO reason High Country Club can’t join these levels in 3 or 4 years – you get to then use $3 M homes for $1,200 per week!

3 years ago, the Exclusive’s membership fee was $180K – all those folks get to use the new residences paid for by new members.


(I have NO financial interest in their club and will receive NO compensation if anyone joins – I think this is like one of those “pre-construction” type Marriott specials that comes around only a few times in a decade and you might seriously consider what they are offering at this point in time)


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## JillChang (Jul 19, 2006)

Great post and info.  It is a great concept, one that I also briefly explore in the past and still extremely interested in, this is definitely the best residence club out there.  It is a great concept for a lot of people, especially when money is no object. 

However, there are several drawbacks, mainly the commitment of high MF, lack of resort amenities, restriction of no renting to recoup MF, limitation of holiday use, and the inability to bank unused week for future use.

Although the high per week MF can be justified, the total MF makes it a real liability.  Even though the upfront membership fee is far less than owning 6 Marriott or similarly high quality resorts, the per week MF is much higher than most.  Many of us owns multiple resorts, but we don't all own 6 high MF resorts.  

The high MF provides you a luxury residence, but not necessarily in a resort.  Some of the resort facilities are highly sought after, I would choose to stay in a private condo/home when I visit major cities, but I definitely will choose a resort with the best facilities when I go to a warm weather destination such as Mexico or Hawaii, which is half the reason I want to go to these places.  I will choose a 1200 sq ft 2 bdrm timeshare resort with lazy river, for example, over a larger and more luxurious private residence that lacks the same facitily.

The high MF also doesn't make sense if you are restricted to the number of holiday week you can take a year.  If most people like me that have school aged children, then we alsmost always have to travel during holidays, Spring breaks, or Summer.  If I am limited to 1 holiday week per year in this club, then I rather purchase multiple timeshare weeks so that I can go when I want, Christmas, New Year, AND Spring break every year, especially for those of us that live in cold climate and really want to take our vacations when it is cold here and stay in our own city in Summer when weather is nice.

The other problem that I see is the commitment of 6 weeks' MF without a way of recouping the MF or banking for future use if for some reason you are unable to vacation 6 weeks in a certain year.  6 weeks vacation per year is a lot, most of us (non-retired people of course) can not be sure we can take that many holidays a year, even if we own our own business and not restricted by employer's rules.  You just nenver know what will happen in a single year.  The restriction of no renting eliminated one way of recouping the MF, and the inability to exchange or banking eliminated another way of extending your unused vacation to the near future.  You either use it or loose it.   Again, great if money is no object, but quite restricted for those that want to make their money count.

That said, I think Perry have found a really good residence club, especially if they add those future destination within the next 3 years, some great destinations they are planning.  It is a great club if you can get your family and friends together so all can enjoy a great destination every year if you can work around the restriction.  I for one will look into it seriously.  I think it wouldn't hurt to at least take advantage of the TUG specials that Perry had negotiated and upgrade to the Private or Group membership later.  I also like their 80% buy back policy (even with 2 in 1 out rule), it will be even better if they make it 80% of current market memberhip cost.  It makes the investment relatively low risks and good potential return in the future while enjoying some great vacations.  This is similar to joining an equity golf club, great upside potential while enjoying some really good golf.  You sort of have to look at it slightly differently than timesharing, this is more like a second home than a vacation timeshare.


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## elaine (Jul 19, 2006)

*fyi-notice the "two in-one out" policy for selling back*

interesting---two in before the next one on the list to sell can get out---don't know anything about this place--other than website--but if it's so great, how come they need 2 new members before you can sell back---and if more htan 1 want to sell, then they have to get even more people.

places look divine--I would definitely think about "biting" if I was interested in high-end ski market.


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## PerryM (Jul 19, 2006)

All of the Destination Clubs I’ve investigated are eager to buy back a membership and resell it at the new price – they just recycle a membership and make more money.  Too bad timeshares don’t do the same thing.

The ultimate version of this would be 100% buy back at the current rate.  However, that would not make the developer any money.  The standard for the industry is the 2-in with 1-out at 80% of the original purchase price.

I’ve talked to a number of startups and they entice new members by offering them 80% of the CURRENT price until they reach a certain number of members.  I’m assuming that’s what this DC did but don’t need to do this anymore.

Postponing MFs for 1 year is unique and I don’t know of others that do it.  The upgrading is again unique and I’ve not heard of that either.  But, I don’t claim to be an expert and I’ve only talked to 5 of these type of clubs.

I’m happy to see them come out with prices that timeshare owners can relate to – hopefully we will see more of these in the future.  I guess a new club could go after the golfing market.

Some of the $500,000 membership clubs include a private jet & limos with the week and their MF’s are sky high. (A little DC humor)


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## gmarine (Jul 19, 2006)

Perry 

What ever happened to that cruise timeshare you purchased a few years back? Is it working out?


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## PerryM (Jul 19, 2006)

*Steady as she goes*

marine,

I spoke to them just today and they expect to launch in 2 years - they are behind schedule.  The modifications to the hull are complete along with new engines and controls.

They have just started working on the cabins.  We will hold on 2 more years.  There are a lot of false rumors floating around and folks just need to talk to Windjammer - their BBB is spotless.

However, if we see no progress in 1 year I'll start renting out the 8 remaining voyages on their other ship - I've done one so far and could break even with 3 more.

So we will see.


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## i39249 (Jul 20, 2006)

Perry,

My family does a lot of cruises.  We are new to TS.  Do you have any info on cruise time shares?   I didn't know such exists.  I was only aware of the Magellan, where they offer fractional ownership.   Could you forward me some website addresses, where I can research please.  

The DC's seem very interesting.  I'm trying to do some research.  I checked their website, High Country Club.  It seems that there are approx. 125 members in the club.  By my estimate that is approx. 3 million dollars worth of membership fees that they have collected along with what ever other developer/ investor money that they started with.  With the approx. 10 properties that they have listed and the houses costing half a million to a million dollars, it would seem that to own the 10 properties out right that it would cost them approx. 7.5 million.   I'm just trying to figure out how they are making their money.  I want to make sure that their  business practices are sound and that its not a scam.     

If 8 people sign up and they buy a new property (8 x $30,000), the money would only add up to $240,000.   That seems hardly enough to buy a new property to add to their inventory.     Are they using the membership fees to pay for downpayment for the property and using the annual fees to pay the mortgage?    8 X $7,200 = $ 57,600    If this is their business model than I can see how they are able to profit.   What's your opinion?


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## JEFF H (Jul 20, 2006)

i39249 said:
			
		

> My family does a lot of cruises.  We are new to TS.  Do you have any info on cruise time shares?



http://www.cruiseshares.com/descriptionwj.cfm


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## PerryM (Jul 20, 2006)

*Someone's paying attention!*

i39249 , (can I call you 249 for short?)

I would not, at this time, buy into Windjammer cruise ships – they have missed their deadline and there is no hurry to get in.  I was their first customer (#1) and had them write a bunch of clauses to protect me so I have very little exposure.


I’m glad someone is paying attention – yes $30,000 * 8 does not equal $1M; its only $240K.  I asked this question and the response was that they wanted to quickly get to 100 owners, which they already have done, and the principals are making up the $760K.

They will rapidly increase their prices until each membership costs $125K and then keep escalating and start to buy more and more expensive residences – that’s how all these clubs work.  Most of these clubs are $300K to join and the principals make their profits at that point.

The really attractive feature is the locking in of the MFs.  ALL the other clubs I’ve investigated average 6% of the CURRENT membership fee – and that fee can easily increase 30+% per year.

High Country’s MF is $7,200 on the Private membership and if you work the numbers backwards that would be a 6% MF on $120,000 close enough to the $125K we’ve been talking about.  However, they are pegged to CPI + 2% which is going to be about 6% each year and not 30+% - this is a BIG benefit.


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## i39249 (Jul 21, 2006)

Perry,

Thank you for the information.  You're a wealth of knowledge.  I learn more and more every day on TUGS........   thanks to people like you.


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## tigerdog (Jul 21, 2006)

> I’ve followed a number of Private Residence Clubs ,their new title is Destination Clubs (DCs) for 3 years now



Actually, a Private Residence Club and a Destination Club are two different things, though the line is somewhat blurry due to the newness of the DC genre. With a PRC you purchase fractional, deeded ownership (such as Ritz-Carlton Club and Four Seasons); DCs are Right to Use. Personally, I'd prefer the PRC model; that way if anything untoward happened, I'd still end up owning something tangible.


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## PerryM (Jul 21, 2006)

*Pros and cons*

Tigerdog,

Yep, the distinction is getting wider and I used to loosely refer to Destination Clubs (DC) as Private Residence clubs since they deal with Private Residences.

There is ONE DC that is equity oriented and it’s BelleHavens, link: http://www.bellehavens.com/?OVRAW=residence club&OVKEY=residence club&OVMTC=standard     (Notice how they use Residence Club in their link too)

Fractionals are great but they are basically timeshares (which are fractionals; 1/50 ownership) and suffer many of their afflictions:

1)	More upscale but still resort oriented

2)	 VERY expensive and many times this is a quarter share and who has 1 week of vacation per month?  Many times the owner can’t use the unit.

3)	Immediate loss of capital - fractionals are not as bad as timeshares but unless this is an ultra hot Ritz look for 30% - 40% loss of capital immediately (there are always exceptions)

4)	Resales are nonexistent – you have to figure out a way to resell the unit on your own

5)	You are fixed to the unit – some do not allow exchanges and rentals

6)	More than 6 - 8 owners per unit (quarter share has 12 owners) means more wear and tear on unit over time

7)	Can’t take advantage of many new residences over the year – same fractional year after year.  Some DC's own cabins on cruise ships.

Each type of ownership has it’s pros and cons.


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## blackjack (Jul 23, 2006)

So did anyone at TUG take the plunge with this offer??  I have been reading a lot about it th last two days, and I am very very close in doing it.  The yearly maintenance fee is the one that might cause me the problem for me.


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## PerryM (Jul 23, 2006)

*A kick in the butt*

We, of course, are interested.  However we will wait until August 14 to make a decision.  The more I read the more I like the opportunity.  However, we always seem to have other opportunities with the money and will wait until the last minute.  Also we have another vacation 8/5 for 7 days and will really study it on vacation.

If you compare the Maui Marriott’s MF or a Maui Westin's MF to the DC’s MF they are close and the quality would be the same.  This is an entirely different experience – private homes and condos – we love that idea.  I’m getting burned out with standing in line at 4 PM and taking 45 minutes to finally check-in since the room wasn’t ready.  Also, the wild kids running around unsupervised is getting old too.

Of course, we are snowboarders and the existing destinations are fantastic and the proposed new ones are even nicer.  This club is currently designed for skiers/snowboarders.  The future expansion plans make our mouths drool with anticipation.

We were in Cabo 5 weeks ago and stayed at a 5-star condo on the beach.  We fell in love with Cabo’s weather and we like the place.  Unfortunately, the 23-mile stretch of beach is not swimmable – average waves are 10’ high 24/7.  However, there is a 100 yard stretch of the beach that is swimmable and this DC has a condo there!

We really don’t need this DC now but 3 years from now we will kick ourselves in the butt for not buying – thus the dilemma.   If we do buy, we will sell some existing timeshares to pay for it.

We will let everyone know on August 15,


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## blackjack (Jul 23, 2006)

Hi Perry,

Yeah, I am facing the same dilema as I have already enough weeks to satisfy me for years to come.  But I just recently started a company, and I just want to get in on it in case our company does well.  Who wouldn't want to travel on company's dime.  I don't want to kick myself in the butt for not buying in 3 years.  I guess I just have to balance the cost of the maintenance fees and the desire to belong to this club.  I am not much of a mountain person as I cant ski or snowboard due to physcial injuries sufferred few years ago, but I love their Playa Del Carmen and Cabo locations as well as future destinations in Newport Beach and NY.  Keep us informed on your decision and what reasoning you used to come to this conclusion.  It might help influence how I think.  Thanks


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## wljet (Jul 28, 2006)

Perry,
We also are interested with the DC idea.
Is it your understanding that High Country Club is using a niche of second homes, 3 or 4 bedrooms, at a million or less,as its business model.Or rather is that how they are building the club with more expensive homes to follow?
If I were to purchase at a higher entry point of 50,000 I think I would expect more.
What are your thoughts on this?
Thanks


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## ArthurN (Jul 28, 2006)

Perry,
What are your thoughts on the Destination Club pioneer Tanner & Haley formerly Abercrombie & Kent filing for Chapter 11 bankruptcy? The High Country market niche intrigues me, but I'm a little more hesitant given this recent news.


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## PerryM (Jul 29, 2006)

*Still looks good!*

Their current model seems to indicate that High Country is shooting for $1 M units – today.

From my reading of how these clubs work, they put up a 50% deposit of the unit and the MFs pay the remaining mortgage payments.  Thus $500k is needed from each of the 8 members of each unit or about $65,000 is what the final membership will top out at.  Currently that membership fee is $30,000 - full membership.

If they ultimately want to entice timeshare folks, they will need to limit the basic membership, the Affiliate membership, to this $65k for 3 weeks of usage with a MF of 8% of that or $5,200 per year or $1,800 per week – the same as a Hawaiian upscale timeshare.

Private membership would be 50% more or about $100k – this is traditionally the entry level for these kinds of clubs.

If High Country believes there is a huge desire for this kind of ownership then they will concentrate their efforts here.  With 111 members to date they seem to have hit on a winner, especially with just their introductory efforts – those 111 owners places High Country in the top 5 clubs.

However, the real estate in these areas explodes in value each year.  Assuming just 15% increase per year and in 5 years the compounding nearly doubles the cost of the real estate – every member gets to use the new units that new owners pay for – the $2 units which should be very similar to today’s units of $1 M.

High Country could easily upscale to $2 M units today by just doubling the membership fees or they could start High Country II, a more upscale version.

Bankruptcy of Tanner & Haley:

Out of any group of companies, some will do well and some will have problems.  The airline industry is such a group of companies.  Tanner could well be absorbed into another club if another club finds the properties attractive and the debt servicing is fine.

Obviously, this news just sheds light upon the management team and their business skills and experiences.  The management team of High Country seems to be mainly real estate with some leisure industry background.  One could guess how well they will do and that’s really what it is – a guess.  I think that the real estate expertise is very important – picking the right areas in a destination area that fits into their business model is key.  The actual running of the units as a club seems to be computer software dominated with logistics needed for housekeeping.

I, personally, and not shaken by this news – if anything it reinforces the notion of getting in at prices that are about 1/5 to 1/4 below industry norms.  I view this as an insurance policy type of payment and hopefully they will survive and become a dominant force in this industry.

I am an investor and accept risk as a partner in any endeavor – there are very few investments that have no risk (US savings bonds to name one).  I do know one thing, 5 years from now there is a VERY high probability that I will be kicking myself in the butt if we don’t buy before August 15 – I’d put the odds at about 75% (3 times more likely to be a winner than a loser).  This is how I view investments.


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## funtime (Jul 29, 2006)

I think I will wait until they are posted on ebay!  This is too rich for my blood.  How does this product compare with condo hotels where it appears that you can make money on the deal -- what is new in the condo hotel industry?  Funtime


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## PerryM (Jul 29, 2006)

Funtime,

Destination Clubs (DC) will never be seen on eBay or anywhere else – ONLY the developer can buy them back or change the member assigned to a membership.

Condo-hotels are a completely different animal – if you want to use a $1 M condo then you put 20% down and get a loan for $800k and it’s yours to use.  You are limited to it’s use only.  A condo-hotel does have real estate appreciation, something that a DC does not.


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## caribbeansun (Jul 29, 2006)

I think it's interesting to note that the very thing that might make the High Country piece attractive is what's being cited as part of the reason for the failure of T&H:

_"...In addition, *many destination club members received their memberships at a deep discount and/or locked in extremely low annual dues and daily usage fees.* The company also pursued various business and real-estate ventures that it believed to be synergistic but that ultimately proved unsuccessful. Such factors, coupled with increasingly stiff competition in its industry, made it difficult for the company to pay its bills, make planned improvements on existing properties and invest in new properties. Accordingly, the company intends to use the Chapter 11 process to stabilize its finances and develop a more viable business model."

_​I question whether comparing this to a large branded product like Marriott is reasonable given the financial backing of said large brand.  There's obvioulsy more risk in the High Country offering than Marriott BUT the reward piece is contingent on future outcomes - it could be a good move, then again maybe not - in this case only time will tell.

This isn't comparable to a condo hotel IMO primarily since the condo hotel unit is full ownership or fractional.  I don't believe fractional ownership is prudent for most of the reasons cited by Perry earlier.  

Full ownership in a condo hotel is an investment NOT strictly the purchase of vacations which I would suggest DCs are.  None of the DCs other than Cresendo hold themselves out as investments but rather an alternative to timeshare, hotel stays, second home ownership etc.  

Condo hotels likely aren't going to make you money on rentals in the near term depending on your degree of leverage.  I suspect many purchasing condo hotel product are buying a couple weeks vacation a year, hoping to breakeven on their annual costs (including the vacation weeks BTW) and gain on the longer term real estate appreciation.  In assessing ROI with a condo hotel unit I allocate the opportunity cost of personal use of the unit to the net rental income (loss) in order to ensure we are comparing apples to apples.  Granted that's my own paradigm but so be it and I'll find out first-hand if this really makes sense pretty darn soon with the pending closing and occupancy of my condo hotel unit at Castaways' Cove in Grand Cayman.


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## PerryM (Jul 29, 2006)

*Chapter 11 - what it means*

Without knowing much more, I’d assume Tanner will survive and continue to offer premium vacations to it’s owners – at some point.  However, the court’s appointed officer may determine that the club should be liquidated and the members may receive some of their membership fee back.

This is 1 out of the top 24 DCs to fail – and the failure may ultimately turn into a success – only time will tell.  Chapter 11 is restructuring of the organization with the intention of continuing normal operation after the creditors take a “time out” for a while.

Anyone contemplating buying into a DC should view the monies “invested” as you would in any venture where there is a risk of loss of capital.

If DC’s contained no risk, there would be hundreds/thousands of them and would give timeshares a run for their money.  Give DCs 40 years and perhaps deciding between a premium timeshare or fractional and a DC may be a very tough decision.

If I could invest in 24 stocks and only 1 had a problem I’d consider my risk to reward ratio outstanding and would keep investing.  But, each person needs to review their risk to reward ratio for various uses of their money.

Look at this link for more info about Chapter 11: http://en.wikipedia.org/wiki/Chapter_11

P.S.
Offering “goodies” to early members in a DC is the standard – all but Yellowstone and DCs like that initially offered goodies to get the club going.

The 100 member mark is considered critical by the Helium report – High Country has exceeded this with 111 members.


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## wljet (Jul 29, 2006)

Todays Wall Sreet Journal Satuday July 29, has an article on Tanner and Haley's problems.T&H had an operating loss of $64,000,000 dollars last year.
They owned 67 homes and 8 undeveloped lots.They leased the rest,I don't have the total figure,but one T&H member in the article was suprised.
It appears that HCC only leases 2 of their properties and it appears puts a cash down payment on each property of 20%.It appears they currently have no undeveloped lots.The have several more under contract.
I would hope everyone is learning and tweeking their models to reflect what happened to T&H


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## PerryM (Jul 29, 2006)

*This risk of risk*

Not to defend DCs or DCs in bankruptcy but timeshares aren’t risk free either.

A student family of mine is currently on vacation at their timeshare in Panama City in Florida – after not being able to use it for 5+ years I believe.  Link:  http://www.intervalworld.com/web/cs?a=1503&resortCode=TBR&parentResortCode=TBR

Seems they bought several weeks there, resale, 5+ years ago.  It was then destroyed by 2 hurricanes I believe and this was the first year they could use it in 5+ years of court fights with insurance companies and new zoning laws which made construction much more expensive.

In those years, when nothing but a husk of a resort remained, they still made MF payments; reduced but still not zero in cost.  In those years they could not sell their units since no one in their right mind would buy them and I believe they had special assessments to get it built.

So as you ponder risk, just about anything you put your money into has risk.  The trick is to weigh the risk to the opportunity and reward.  Each family must place the risk on one side of a scale and opportunity and reward on the other.


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## caribbeansun (Jul 30, 2006)

Surprised at the number of homes that are leased or surprised it went Chapter 11?



			
				wljet said:
			
		

> They owned 67 homes and 8 undeveloped lots.They leased the rest,I don't have the total figure,but one T&H member in the article was suprised.



That loss figure is astounding, I can't even imagine how they could get to a number that large unless all their members stopped paying at the same time.  They have 874 members, 150-330 homes (nobody seems to know the actual figure).


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## PerryM (Jul 30, 2006)

*Nuts and bolts*

I’m still trying to understand the “nuts and bolts” of how a DC really works internally.  Theoretically they are supposed to take the cost of a condo/home and divide by 8 or 6 ( the number of members per unit) and that’s the cost of a membership – theoretically.

From what I’ve been reading, many DCs really only put 50% down payment on the unit (and thus can buy units costing double that) and the MFs pay for the mortgage payments.

This leveraging can lead to horrible consequences – like bankruptcy – the monthly cash flow can’t make the mortgage payments if membership recruiting should slow down.  I get the impression that the bankruptcy was caused by this over leveraging.  Solution – sell a number of units and scale back to where it should have been in the first place.


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## caribbeansun (Jul 30, 2006)

Doesn't sound like that's the whole story though.  If they had ownership of only 67 homes and leveraged 50% presumably they'd be all right.  Add on top of the leveraging the lease contracts for some 150+ properties and I'm starting to see why they blew up.  

I also note that they created 3 distinct pools of properties over time.  The lowest value ones were the initial pool created in 1997 - buy in was $275k with mf's of $17.5k, property values of $1.5M , then in 2002 they added a second pool - buy in was $475k and mf's of $25k, property values of $3.0M and finally in 2005 the third level - buy in $1.5M with mf's of $75k and property values of $12.3M

It's likely that this third pool lead to their problems - it's a jump of 10x from the initial idea.  It certainly could go bad FAST playing in that game but a $64M loss is still beyond comprehension even at that level.


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## wljet (Jul 30, 2006)

The WSJ article had the member Suprised by the amount of homes leased by T&H.


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## PerryM (Aug 4, 2006)

*Pondering still…*

We are going on another vacation and will be back August 14, 1 day before the August 15 deadline for price increases.  During this time we will, once again, review our options with this DC.

The Helium Report just published a great article that anyone interested should review: http://www.heliumreport.com/destination-clubs/destination-clubs-understand-the-risks-000419.php

When we return I’ll post our decision, until then we will ponder away.


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## PerryM (Aug 6, 2006)

*More reading material please*

Another article to read: http://www.post-gazette.com/pg/06215/710243-37.stm

I think the DC industry needs to have a "Heart to heart" discussion - are they buying residences or leasing them?  The idea that makes membership desirable is for the club to own the residences and not lease them.  That's the model I'm interested in.

Leasing residences is a completely different business model that would allow memberships at a fraction of the $150k minimum level.  I'm reading more and will report findings this week while on vacation in a timeshare.


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## caribbeansun (Aug 7, 2006)

You should take a closer look at Bellehavens then - they purchase virtually every residence and Cresendo is a more pure equity investment from what I've read.

I've noted some changes to these clubs over the past few years in terms of plans, rates, redemption options.  The industry seems to be evolving.


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## PerryM (Aug 7, 2006)

*Wild wild west*

If we had $200k to invest in a DC BelleHavens would be the one we would pick.  I like what they are doing in terms of protecting their member’s investments.  However, the industry seems to be in the “Wild West” phase where anything goes and the member has little to no protection of their investment.

High Country Club allows for a much smaller position and thus less risk – I like this too.

However it seems that the entire DC industry needs to be separated into:
1)	Ownership DCs
2)	Lease DCs

The problems of Tanner & Haley seem to be facing are due to several aspects:

1)	Idiotic concept of “ANY residence is available ANY week of the year or we will find a substitute”.  How stupid are those folks?  Who doesn’t want to spend week 52 in Maui or on the ski slopes with the family?  Tanner had to find comparable accommodations and make it available to ALL members who wanted to vacation at hot holiday weeks.  This is an insane policy that the members are going to pay dearly for.  Any member thinking that the club could survive such a crazy policy deserves what’s in store for them.

2)	Ownership went bye-bye when the above policy kicked in all the time so it sounds like they just leased most of their residences.

To mix the ownership and lease together seems to be a recipe for a disaster.  If the leasing model is to be used, then it seems that the annual MFs pay for the leases and membership fees should be in the range of High Country Club.

It’s fortuitous that the Tanner problem awoke the industry and newspapers to what’s going on – I’m reading everything I can find.  I am still looking at High Country, but with more questions to be answered.  I’ll report back this week as I get them answered.


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## PerryM (Aug 7, 2006)

*Some answers*

Ok, I got some important answers from High Country Club this morning:

Currently, as of today, they have 12 residences that they allow their members access to.  10 are owned and 2 leased.  The 2 leased have to do with areas like Beaver Creek where the HOAs of all the resorts got together and had laws passed outlawing DCs to buy a condo or house.  In order for High Country to get in they had to lease.

High Country indicates that they will always buy but a small number of residences may be leased because of HOA rules.  They are shooting for 95% ownership.

High Country Club is one of the 8 founding members of the Destination Club Association, started early this spring with the intention of recommend accounting practices and techniques that will make the ownership more transparent and uniform.


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## Werner (Aug 7, 2006)

It would seem that one of the big unknowns in DC's in general and the Tanner DC in particular is; what is being done with the new member sales money?  The assumption is (and the sales material implies) that it goes into buying property while the maintenance fees go into maintenance, taxes and operating management.  The Tanner "owners" apparently don't own as many of the properties as they thought, payed premium prices for leases on some properties that they used and transitioned from a cooperative real estate venture to an operating vacation club.  

The basic idea of a group of like-minded individuals forming a coop to buy a group of vacation properties and sharing their use and sharing the real estate gains accrued by the properties makes sense.  The farther the group strays from collectively owning assets and moves toward operating a vacation club the more like a timeshare system it becomes and the less protected the assets are.  The Wall Street Journal article made it sound like Tanner had become a Ponzi scheme, using new member's payments to pay operating expenses rather than buy new properties or servicing redemptions.


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## caribbeansun (Aug 7, 2006)

You both make very good points.

The Bellhavens model takes all member deposits and puts them into an escrow account until 10 memberships are purchased.  When 10 memberships are secured they then purchase a residence from their management company.  The management company is commissioned with finding and developing properties as well as providing ongoing maintenance.  They do lease some properties as well to accomodate holiday season which is a bit of a red flag along the T&H route.

T&H - if I can speculate here - membership money on new sales sounds like it went into a pool that was used to purchase and/or lease properties.  Leasing in the long term is a recipe for disaster as you need to keep feeding it with new memberships.  Once the inflow slows you're SOL.  If they blew through too many membership dollars then there's nothing left to purchase more properties and it's just a matter of time before it impodes - which of course it did.

The flaw with the "like minded" approach is all the restrictions on ownership levels by the SEC among others.  While I agree this would be the ideal scenario I'm not convinced you could get to a point of critical mass to enable the club to be self-sustaining.  In other words, you always need the management team to ensure properties are maintained, refurbished not to mention the every day operating chanllenges so you need a certain level of residences in order that mf's are sufficient to pay somebody or somebodies to do these functions.  That number of residences pushes it beyond the scope of most allowed investment structures (at least those I'm aware of) and it imposes signficant restrictions on advertising.  I'm guessing you'd need between 5-10 residences in order to make this viable and as a result if you have 8 owners per property you're talking 40-80 "investors".

With High Country I'd be concerned about their sustainability and the number of low entrance memberships they are selling - they seem to be setting themselves up for issues down the road.  Their usage allowances seem too high (11 properties x 51 weeks = 561, 100 members x 6 weeks = 600 weeks) and their mf's and buy-in pricing seem too low to me and while that may benefit the early adopter it may undermine their long-term success.  I understand this lower pricing was in order to get their first 100 members.  I'll be watching it to see where they go from here.  Having said all that they have purchased smaller and more modest homes so perhaps they are sustainable over the long haul.  Of course, as Perry pointed out earlier in this thread their entry points are very comparable and are less than some higher end TS - given the two options I know I'd pick the well run DC over the TS any day.


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## PerryM (Aug 13, 2006)

*We will NOT be buying a membership at High Country Club on August 15*

This does NOT mean that I have anything against High Country, to the contrary they offered TUG members special consideration as timeshare owners.  If you find that High Country offers an attractive program, I won’t argue the point.


Basically, we want a DC based on BelleHaven’s organization:

1)	Equity based
2)	90% retuned based on current membership
3)	“Wind down” provisions

*Equity Based:*
I like the idea of the membership fee being escrowed and when 10 new members are recruited a residence is paid for (debt free) and all members own a proportional part of the deeds.  The management company makes their money, on the residence, when the residence is found and sold to the DC and not each month in maintenance fees.

*90% retuned based on current membership:*
With membership based on the current membership fee, you participate in real estate appreciation and the DC gets only 10% of the current fee.

*“Wind down” provisions:*
I want the provisions described in detail how the members will be paid if the DC goes out of business.  The members should split the proceeds of selling the residences.  If management screws up the members are protected.  Those deeds must not be contaminated with the management’s bungling of operations – those deeds should be liquidated independently of the management company and split among the members.


I think with the pioneer DC going bankrupt (Tanner & Haley) there is cause to doubt the model they chose – which 95% of the industry follows.  I’m not making a blanket statement that they are all headed for bankruptcy, however the model the pioneer chose was extremely flawed and their members were not aware of the perilous position management foisted upon them.  There are no state laws to protect consumers from any insane management decisions.

I was leaning towards taking a risk with High Country but since we really want to postpone usage for 3 years it occurred to me that during that time a start up DC, based upon the BelleHaven model, could offer introductory rates that we would gladly buy.  I will monitor the Helium Report and if something new comes up, I’ll alert everyone.


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## caribbeansun (Aug 13, 2006)

I wasn't sure if you were speaking hypotetically or referring directly to the Bellehaven model with the quoted comment.

The Bellehaven model puts all the deeds into a non-profit company, the members get a "share" of the non-profit company along the same lines as an equity membership in a golf course.  I'm not convinced that there is true proportional ownership in the deeds using a non-profit.  Regardless it's a superior model to most.

Judging from the limited numer of posters on this thread the DC concept doesn't seem to have many advocates here - I wonder if it's the price point that scares people away or is the concept?




			
				PerryM said:
			
		

> *Equity Based:*
> I like the idea of the membership fee being escrowed and when 10 new members are recruited a residence is paid for (debt free) and all members own a proportional part of the deeds.  The management company makes their money, on the residence, when the residence is found and sold to the DC and not each month in maintenance fees.


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## PerryM (Aug 13, 2006)

*Equity model is what I really want*

I like BelleHaven’s model – however, any version of this equity based mode (golf course model) would be fine with me.

The past few weeks have had me digging into how DC’s work and the conclusion I get is that only 2 DCs are equity based, with BelleHaven being the more affordable at $200,000 entrance fee.

This is still too expensive and risky for me.  If an equity model could be based on 10 members and $850,000 residences that would mean an entrance fee of $85,000 which is more like it.  The standard 8% of membership fee for MFs would then result in a yearly MF of $6,800 per year for 1/10 years usage of 36 days or 5 weeks results in a weekly MF of $1,360 which is right in line with top end timeshares.

Hopefully a “cookie cutter” franchise will evolve where a number of investors pool money and buy 5 or so residences and begin an equity based DC.

However, the $20,000 membership fee, which caught my eye, just can’t be used in such an equity based DC.  Oh, well…back to the drawing board.

Maybe a year from now I’ll kick myself in the butt, but the bankruptcy of the pioneer DC should send up all kinds of warning alarms.  As an investor, I have learned that those warning signs are to be used in one’s analysis and greed needs to be reflected on those warning signs.

If done properly, DC’s could explode on the real estate market and offer all the benefits of a timeshare with equity participation.  This could quickly become an alternative to timeshare ownership.  However, right now, the industry seems to be based on a non-equity model with no state regulations – too risky for me.

P.S.
For the initial investors who buy the first 5 or so residences, their profit comes later when the club’s $850k model residence is now $2M and they can sell their memberships to new members – they profit from the workings of the well run club.

The MFs must NOT be used for lease payments – they should ONLY be used for maintaining the club and NOT be used for lease payments.  If a leased residence is the only alternative, like at some hot ski resorts that outlaw DCs, the membership money should be placed into a relatively safe investment instrument and the interest payments make the lease payment.  E.g. the $850k at 5% = $42,500 per year to go towards leasing a residence when ownership is prohibited.


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## MULTIZ321 (Aug 13, 2006)

PerryM said:
			
		

> I like BelleHaven’s model – however, any version of this equity based mode (golf course model) would be fine with me.
> 
> The past few weeks have had me digging into how DC’s work and the conclusion I get is that only 2 DCs are equity based, with BelleHaven being the more affordable at $200,000 entrance fee.




Perry,

What's the second Equity based DC?


Richard


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## PerryM (Aug 13, 2006)

*Crescendo*



			
				MULTIZ321 said:
			
		

> Perry,
> 
> What's the second Equity based DC?
> 
> ...



Crescendo, link: http://www.heliumreport.com/destination-clubs/crescendo-looks-for-investors-not-members-000405.php

http://www.heliumreport.com/crescendo/crescendo_info.php

http://www.crescendoresidences.com/pages/news.html


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## Steamboat Bill (Oct 14, 2006)

PerryM said:
			
		

> I am an investor and accept risk as a partner in any endeavor – there are very few investments that have no risk (US savings bonds to name one).  I do know one thing, 5 years from now there is a VERY high probability that I will be kicking myself in the butt if we don’t buy before August 15 – I’d put the odds at about 75% (3 times more likely to be a winner than a loser).  This is how I view investments.



Perry:

I have been looking into HCC even before I joined TUG, but read your posts with great interest.

When I first heard about them, they only had a few Colorado properties and seemed to only cater to skiiers/boarders. Now I see them GROWING and EXPANDING into areas like Florida, Hawaii, Mexico, etc.

I believe HCC will be the #2 DC (behind Exclusive Resorts) within the next 24 months and their buy-in will be $60k for an affiliate member. Perhaps you might be kicking your own butt sooner than 5 years!


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