HCC files chapter 7

[mjs]

The writing was on the wall. We all new it was coming.

 

[LisaH]

Agreed! It's still sad nonetheless...

 

[tombo]

When many here said run away from HCC and all DC's, many dissenting voices advocated purchasing HCC, Lusso, and others. When signs of trouble in the DC industry surfaced (as was predicted), many DC advocates still bragged on the accomodations, service, and locations offered by DC's. The DC devotees said join, join, join in the face of DC Armageddon. We heard often that DC members considered the membership fees "throw away money". For all the things DC advocates have been proven wrong about, I sure hope they were right that DC members considered membership fees as "throw away money", because they have definetelly thrown that money away. When HCC was asking for annual MF's to be paid up front, many here still said trust them, pay the money, and HCC will survive.

I hate the fact that so many are losing their entire investment, but they had plenty of warnings here on TUG.I hope all who consider joining a DC in the future listen to the voices of warning and reason rather than the loud cheers from past and future DC cheerleaders.

 

[mshatty]

When many here said run away from HCC and all DC's, many dissenting voices advocated purchasing HCC, Lusso, and others. When signs of trouble in the DC industry surfaced (as was predicted), many DC advocates still bragged on the accomodations, service, and locations offered by DC's. The DC devotees said join, join, join in the face of DC Armageddon. We heard often that DC members considered the membership fees "throw away money". For all the things DC advocates have been proven wrong about, I sure hope they were right that DC members considered membership fees as "throw away money", because they have definetelly thrown that money away. When HCC was asking for annual MF's to be paid up front, many here still said trust them, pay the money, and HCC will survive.

I hate the fact that so many are losing their entire investment, but they had plenty of warnings here on TUG.I hope all who consider joining a DC in the future listen to the voices of warning and reason rather than the loud cheers from past and future DC cheerleaders.

There will be a Chapter 7 trustee who will have access to all financial records of HCC. He/she will be able to determine if there are monetary/property transactions that should be set aside to be returned for the benefit of creditors.

Where was the bankruptcy filed, if anyone knows?

 

[LisaH]

Probably CO as the headquarter is/was located in CO

 

[PerryM]

Zombies smell...

The entire DC market will join HCC in bankruptcy in 2009.

The DC industry decided to get piggish and not take the money from the members and actually buy a condo but to take that money and use it as a down payment to buy a condo worth twice as much. Then instead of taking the MFs and using it to maintain the condos and run the club those MFs were used to make the mortgage payments.

The DC industry knew this was playing with fire and so hid all this from the members with NDAs that all of these DCs use to keep their members in the dark.

Add to that NOT ONE LAW anywhere that would protect the members and you have all the makings of a house of cards. When the sub-prime fiasco hit and then real estate fiasco hit and then the credit market fiasco the DC industry became a zombie – wandering around rotting and generally being a nuisance to everyone.

Its sad to see members lose all that money but they made their decision and loaned the DC huge sums of money with NO assurances that any of this stood a chance of working. Sadly it is decomposing in real time in front of us and it just stinks.

Let me repeat the definition of a DC that I coined 2 years ago:

"A DC is where 8 folks buy a rich guy a condo and then pay him rent to use it"

That definition says everything you need to know about the DC industry.

 

[RLG]

I was off by 20 days in my prediction.

On February 11, 2007 I predicted that HCC would be bankrupt in two years. Mea culpa, I was off by 20 days.

http://www.tugbbs.com/forums/showthread.php?p=282631#post282631

...the issue which I think is underemphasized in all the cheerleading for destination clubs. Let me restate:

There is a substantial risk that destination club members will lose 100% of their investment and be left with nothing. That risk does not exist in most other forms of vacation ownership.

The oldest club in existence already has experienced the meltdown scenario. However, "this time is different" for HCC and others...

You think the problem with T&H was that the members were "GREEDY"? Since you didn't explain, I'll guess that you mean they should have known the deal was too good to be true. However, you then go on to talk about what a great deal you're getting from HCC. When HCC goes bankrupt and leaves you with nothing in two years, are you going to say the same thing about yourself?

 

[PerryM]

On February 11, 2007 I predicted that HCC would be bankrupt in two years. Mea culpa, I was off by 20 days.

http://www.tugbbs.com/forums/showthread.php?p=282631#post282631

Congratulations - your prediction was spot on.

So, what do you think of the stock market

 

[m61376]

On February 11, 2007 I predicted that HCC would be bankrupt in two years. Mea culpa, I was off by 20 days.

http://www.tugbbs.com/forums/showthread.php?p=282631#post282631

Very impressive!
Although I wasn't so sure about the timing when you wrote that post, I agreed with the underlying premise. I had looked into HCC when Bill was so vociferously touting it and felt that it was built like a house of cards- that one day would likely come tumbling down.

I feel sorry for all those who invested in it, especially over the last year and then got sucked in to pay this year's MF's. I lost track of the thread, but did people pre-pay this year's MF's or were they allowed to pay it out over the course of the year, which hopefully lowered thier losses a little anyway.

 

[pwrshift]

... I lost track of the thread, but did people pre-pay this year's MF's or were they allowed to pay it out over the course of the year, which hopefully lowered thier losses a little anyway.

HCC, probably for legal purposes, had to revise their ill-conceived 'success' plan into a 'stabilization' plan and go back to the legal membership documents each member and the company signed...which permitted a cost of living increase plus 2-3% increase in annual dues ... and to permit monthly payments as before (not annual at once). They dropped their number of locations to about 20, then revised it to 17 ... which for 375 or so members meant there were pretty slim pickings.

The abrupt turnaround made some members very suspicious but, unfortunately, it seems a majority of members signed up to continue paying dues to 'help' their club succeed, but it now appears to have been another con to get more membership fees until they filed for Chapter 7. If 300 members paid an average dues of $500 a month on Dec 1st and Jan 1st, we're talking another $300,000 of good money after bad from members who should have known better IMO. It's gone now - again.

Then ... just a couple of days ago, some members (not all) got an email telling them that they were filing for Chapter 7 and the website and phones were turned off. Nice treatment for members who really were sincere in trying to help out. Committed members, in good faith, booked 2009 holiday time, purchased plane tickets, etc., and prepared for holidays that have now evaporated.

The members of HCC got off light compared to other DC's like Lusso which charged close to $500,000 to join and filed Chapter 11 without any warning. Other failures and major changes have been announced by other clubs and more will be on the way.

Sad to see the DC bubble burst ... but that's what you get when you 'invest' money in a private company that won't give you the necessary information on how they do business and makes you sign a non-disclosure agreement. It was too good to be true. And the flock soon found that out.

 

[Bourne]

I will call it how I see it. The DC industry as it existed for the past few years is history. Gone are the days of greedy members, piggish management, under funded plans not designed for downturns, no communication bad investments.

That said, the industry itself is not gone. The healthy players will always remain. Look at the timeshare industry. It took approx 20 years+ to get it right.

[Self-promotion is not allowed on TUG.-DeniseM Moderator]

And PerryM, have at it... You input needs to be taken with a pinch of salt but it is relevant in some cases. It will help smoothen the rough edges...

 

[m61376]

Thanks Brian for the update. I thought I remembered something along those lines. I can understand how members who already had so much invested and had booked vacations and, in many cases, plane tickets for the coming year wanted to hold on; it is too bad they just got suckered in to giving the owners a nice little nest egg before they closed shop by paying 2 extra months of MF's.

Personally, I was turned off when I spoke to the CFO two years ago. I felt like I was being given a bit of double talk and some of what he was saying wasn't as advertised, which made me very wary despite some of the very supportive posts from Bill and others here.

I agree with Perry- ultimately, the only security a destination club can offer members is if membership is backed by real estate equity.

 

[pwrshift]

Bourne ... I think it would be fairer of you to mention that [you are promoting] your DC start up. While I wish you good luck with the launch, please make the uninformed informed from the start.

 

[Bourne]

Bourne ... I think it would be fairer of you to mention that [you are promoting] your DC start up. While I wish you good luck with the launch, please make the uninformed informed from the start.

True. My bad.

I was leery of TUG rules and was keeping it as generic as possible.

 

[mshatty]

On February 11, 2007 I predicted that HCC would be bankrupt in two years. Mea culpa, I was off by 20 days.

http://www.tugbbs.com/forums/showthread.php?p=282631#post282631

You still may be right. As of today, HCC still has not filed a bankruptcy according the Pacer US Party Index.

 

[mshatty]

I will call it how I see it. The DC industry as it existed for the past few years is history. Gone are the days of greedy members, piggish management, under funded plans not designed for downturns, no communication bad investments.

That said, the industry itself is not gone. The healthy players will always remain. Look at the timeshare industry. It took approx 20 years+ to get it right.

[Advertising deleted.-DeniseM Moderator]

And PerryM, have at it... You input needs to be taken with a pinch of salt but it is relevant in some cases. It will help smoothen the rough edges...

How will it "do it right"? That's a great promise, hard to perform.

 

[BocaBum99]

How will it "do it right"? That's a great promise, hard to perform.

If there are membership fees not tied to real estate value and if there is any type of restriction for selling your ownership, then it is just another Ponzi scheme. I don't see how anyone is going to trust that model again.

It's time to create a new vacation product and avoid the term "destination club."

 

[PerryM]

If there are membership fees not tied to real estate value and if there is any type of restriction for selling your ownership, then it is just another Ponzi scheme. I don't see how anyone is going to trust that model again.

It's time to create a new vacation product and avoid the term "destination club."

Spot on!

I've suggested instead of calling it a "Destination Club" they call it an "Arrival Club".

AC DC - its a personal choice.

 

[Bourne]

How will it "do it right"? That's a great promise, hard to perform.

Do what no club does now.

1. Hold assets equivalent to refundable deposits in trust account with members being beneficiary.
2. Cash flow positive from day one.
3. Quarterly and Annual financial reporting to its members.
4. Strive towards 100% no debt model. Strive because it cannot be done upfront.
5. Report executive renumeration details to its members.


It's not that hard.

 

[BocaBum99]

Do what no club does now.

1. Hold assets equivalent to refundable deposits in trust account with members being beneficiary.
2. Cash flow positive from day one.

It's not that hard.

I don't see how you can do 1 and 2 in the start up phase. This means if you collect $1,000,000, you have to hold assets like Treasury bills in a trust account equal to $1,000,000. If you do that, you have no capital to buy properties. Where does the cash come from to buy the real estate?
Sounds like another perpetual motion machine to me.

I think the whole deposit idea is a really bad one. I've thought so from the start. Why don't you just start a real estate investment trust the acquires and rents properties. The rents are cheaper to owners of the REIT. At least then, the owners own the real estate.

Anyone starting a DC may as well start selling credit default swaps. No matter how good it is, it's not going to get traction.

 

[Bourne]

I don't see how you can do 1 and 2 in the start up phase. This means if you collect $1,000,000, you have to hold assets like Treasury bills in a trust account equal to $1,000,000. If you do that, you have no capital to buy properties. Where does the cash come from to buy the real estate?
Sounds like another perpetual motion machine to me.

I think the whole deposit idea is a really bad one. I've thought so from the start. Why don't you just start a real estate investment trust the acquires and rents properties. The rents are cheaper to owners of the REIT. At least then, the owners own the real estate.

Anyone starting a DC may as well start selling credit default swaps. No matter how good it is, it's not going to get traction.

Trust 101.

It can hold any asset of monetary value. In the example provided by you, $1 Mil will result in $800,000 in refundable deposit obligation.

In effect, the deed of whole property without debt will be transferred over to the trust.

Paragon - Grantor
Trust Bank - Trustee
Members - Beneficiary.

 

[caribbeansun]

It's a start but I suspect members might want some assurance regarding the liquidity of their trust asset in the current economic climate.

This type of arrangement would have been a real issue over the past year.

Buy two places for a total value of $2,000,000, transfer title to the trust after removing the $400,000 non-refundable portion.

Real estate value drops by 30% so now the trust's asset value is $1,120,000 whereas the obligation is still $1,600,000. How do you make up the $480,000 shortfall?

Unless of course your model downward adjusts the refundable $'s based on the valuation of the underlying assets. It then becomes a straight real estate play without the ability to control the underlying assets and the inability to resell what is best described as a fractional unit with a very limited (virtually non-existent) market.

I put together something of this nature and to provide some assurance around liquidity we added a 5 year vote as to whether we sell or not. All owners had a ROFR to take out any other owners should the end vote be to sell. The transaction price was to be a 8% below market to adjust for unpaid real estate commissions and other closing costs.

Don't really know what your plan is but good luck to you, start buying Gaviscon in bulk though because you may be severely underestimating the grief you are creating for yourself.

 

[PerryM]

What's that buzzzzzzzzzzz?

...
Don't really know what your plan is but good luck to you, start buying Gaviscon in bulk though because you may be severely underestimating the grief you are creating for yourself.

Solomon couldn't have said it better.

The DC industry is a hornets nest and sticking your hand in it to help out is going to get you stung - a lot. Folks will simply turn their anger from a DC that went out of business to your efforts - its just human nature.

Oh sure initially they will be bubbling but they have already run out of patience and will simply continue their rants on the new DC.

 

[m61376]

I think Bourne's concept in theory may be sound and maybe I'm too dense, but I don't see a practical application. I think for a design like this to work you need someone with deep pockets to lay out the upfront money to make the property purchases and then slowly "repay" themselves with the 20% membership fees that are not guaranteed.

And, as pointed out, how can you "guarantee" the 80% when payback is based on a variable asset? Backtrack 3-5 years- if you had purchased properties then at any of the locations you are suggesting, what would there value be today? With the exception of marked appreciation in the NYC market, I would venture to guess that most, if not all, of the other "investments" would have taken a big hit.

I would think that the only real way to do this would be giving members shares of property backed investments, so that their ownership equity would vary with the market, but of course this creates the question of liquidity, etc.

Again, I may be a bit obtuse for this discussion, but that's how it hits me at first glance.

 

[thinze3]

Question

Were any Tuggers burned by a DC's filing bankruptcy?
Not to get too personal - just wondering.