2008 Year end Destination Club review-a total disaster

[PerryM]

Well 2008 was a total disaster for the DC industry – 2009 will be even worse.

Take a look at a heavily regulated industry, the securities industry, and see what ONE con man can do - $50 billion down the drain from some very savvy investors. Imagine what con-men can do with the wild and unregulated DC industry.


The DC industry was created out of thin air – a few pages of legal gobble gook and a DC is created. There are NO state or federal laws that protect the members – just the words of fast talking salesreps on the phone. An address at a Kinkos/UPS and a disposable cell phone from Wal-Mart are all that is needed to start your own DC.

I see 2009 as the year the DC industry succumbs to bankruptcy with ALL the deposits of the members lost. A few might struggle thru 2009, morph into something else, but as 2010 chimes in the DC industry is toast.

I take no pleasure in making this forecast and can only back up my forecasts with my opinions. I see no relief for the real estate industry and humongous turmoil in 2009 – folks will have much better things to do with their money than using disposable income to blow on a paper thin "investment" like a DC. The equity based DCs are in no better shape to survive when the term “Destination Club” takes on a tarnished reputation that folks will not want to buy into.

Folks reading this and wondering if they should write a check to some guy over the phone please note that the DC market is infested with fly-by-night armatures who have little to no experience in running a real estate or hospitality venture. There are NO state or federal laws that regulate this industry and the industry’s attempt of self-regulation is a joke.

The vast majority of DCs are over leveraged which can only survive if new members pay ever higher membership fees for falling real estate prices - a recipe for disaster.

Remember my definition of a DC:

“8 folks get together and buy a rich guy a condo and then pay him rent to use it”.

I, for one, can’t see the logic of doing this but you are all grownups and it’s your money.

Best of luck to all of you in 2009.

Don't say no one ever warned you....

 

[pwrshift]

I think the killer right now is the 'resignation list' of the various DC's. The economy is toast, the wealthy ARE feeling the pinch, and I suspect nobody is buying into DC's right now. Even with current DC members, the confidence level in their club's ability to survive must be rock bottom. The low end and the high end failures (HCC and Lusso) sent shock waves through the industry, and there are rumors of more to come. I get the feeling DC salesmen are walking the streets - I used to get 3-4 emails a week from DC's - sometimes duplicates from different sales reps in the same company - now I get almost none.

Members who now want 'out' of their DC are facing, in most cases, a 'two-in, one-out' resignation process ... where two new people must join for the first one on the resignation list gets the membership fee back. Imagine if you're 50th on the list ... 100 people must join before they even get to you. That's if the DC even tries to pay off those people trying to get their money back - they are mostly private companies and their members know very little about what is going on. Most members seeing no light at the end of the tunnel for membership reimbursement will probably continue to pay their dues, fight other members for reduced availabilities, and hope for a better tomorrow - as long as they can afford today.

The early enthusiasm for joining a DC was based on the security of the contracted 'promise' of receiving 80-100% of the membership fee back - and many said it was cheaper than buying a timeshare direct where you were bound to lose money if you resold. The pitch was: "What have you got to lose, pay HCC your membership fee and if you resign they'll give you 100% of your money back the first year". But, in an expanding market during good times, few people (other than PerryM) ever thought or wondered what would happen in a down economy when nobody was lining up to join. The con job was on, and troubled DC's continued to sell memberships knowing they couldn't deliver the vacations. Nice. Lawsuits are inevitable.

It's tough out there...for timeshares too. I tried on Ebay to rent my 2009 President's week Florida beachfront TS in Fort Lauderdale - twice - the first time the highest bid was about $300 for the week and under the reserve, the second time there were no bids at all - so I turned it in to Interval which gives me another 2 years to use it. If you look at Ebay, the only serious buying is for timeshares where some owners just want out of their annual MF obligation ... some Marriott's are selling at bargain prices - and Marriott is not using their first right of refusal in most cases because they can't sell them either right now.

But, tomorrow I'm sure there will be timeshares. I'm not sure if there will be destination clubs...at least the private company types.

 

[ricoba]

Members who now want 'out' of their DC are facing, in most cases, a 'two-in, one-out' resignation process ... where two new people must join for the first one on the resignation list gets the membership fee back. Imagine if you're 50th on the list ... 100 people must join before they even get to you. That's if the DC even tries to pay off those people trying to get their money back - they are mostly private companies and their members know very little about what is going on. Most members seeing no light at the end of the tunnel for membership reimbursement will probably continue to pay their dues, fight other members for reduced availabilities, and hope for a better tomorrow - as long as they can afford today..

Isn't this the classical definition of a Ponzi scheme?

I have only lurked on these threads since there was no way we could afford one of these clubs, but now I can be thankful, we couldn't have afforded one!

 

[PerryM]

Carlo Ponzi would be proud...

Isn't this the classical definition of a Ponzi scheme?

I have only lurked on these threads since there was no way we could afford one of these clubs, but now I can be thankful, we couldn't have afforded one!

What doomed the DC industry was greed by both the con-men who started them and the marks lured in expecting an unrealistic “bang for the buck”.

In order for a con to work the con-men must latch onto greed in the mark. In the DC industry the marks wanted $2 M villas to use while putting up just $ 1 M among 8 marks. The DC then leveraged the membership fees into loans and used monthly MFs to make the debt payments. The DC and the members were living way beyond their means.

This scheme worked fine as long as 1) real estate kept going up each month, 2) Mortgages were easy to get, and 3) Marks keep buying memberships each month with a lot of disposable income. The “perfect storm” of US government incompetence screwed up the con-men’s dream of the perfect Ponzi scheme.

It really helps if there are no laws, both federal and state, to get in the way either. Also no self policing by the industry and zero transparency into operations is helpful to the cons. Real estate peaked 1.5 - 2 years ago but DC membership fees and MFs kept going up during that time frame - the Ponzi scheme requires the latest marks to pay benefits that the earliest marks get. This works until reality breaks the cycle - that's happening in the DC world right now.

But fear not; the DC will be incorporated into the classical definition of Carlo Ponzi’s scam that works to this day.

 

[ricoba]

Well I guess the only redeeming quality of Bernard Madoff, was that he was at least willing to admit it was all a Ponzi scheme....now if only the DC industry would do the same!

 

[PerryM]

Well I guess the only redeeming quality of Bernard Madoff, was that he was at least willing to admit it was all a Ponzi scheme....now if only the DC industry would do the same!

What’s happening in the DC world is very interesting – DCs are in a lot of trouble – no new members, and the resignation lists are full. Yet, DCs in trouble seem to have their members willing to put up with just about anything – as long as the scheme can continue just a little longer (until the next vacation is over).

HCC (High Country Club) is a great example of incompetent management who did the following:

1) Told members they were broke – all membership fees gone (no one knows where)
2) Demanded the members vote to pay higher MFs and pay 1 year in advance
3) Cut the number of villas since the banks were foreclosing
4) Cancelled reservations
5) Fired everyone but the head guy
6) Closed up the offices
7) Worked out of his basement
8) Then found out that the members would not go with the new scheme
9) Got a new office in a strip mall
10) Members could sell their memberships on eBay for any amount of money - $1
11) New members pay less in membership fees than existing members
12) Went back to the original agreement and forgot about all the above (but with fewer villas)

Other DCs are doing a variation of the above but have declared Chapter 11.

So the con doesn’t stop – it continues and the members seem to be willing to go with higher MFs, fewer villas, and fewer vacation days. It’s amazing to watch this happen.

To all those drive-by media reporters that keep coming to TUG to find out what's happening - this is a juicy story that will make readers chuckle with amazement.

 

[m61376]

So how is HCC actually functioning these days? Are members back to paying the old annual dues, or were they increased? And, now that the number of homes were decreased, are there enough weeks available for each member to actual book all of his/her ownership weeks, or are they depending on a 70% usage or something in that area?

I followed these threads with a great deal of interest, being sorely tempted but unconvinced that it was sound after doing my own investigation. My heart had said yes but my gut instinct, which prevailed, thought that it resembled a house of cards in too many ways; obviously, with the current collapse, I think my instincts were right. Yet, I am curious as to how they are actually functioning and if members really believe they have a future.

 

[PerryM]

Firesale - two for the price of one!!!

So how is HCC actually functioning these days? Are members back to paying the old annual dues, or were they increased? And, now that the number of homes were decreased, are there enough weeks available for each member to actual book all of his/her ownership weeks, or are they depending on a 70% usage or something in that area?

I followed these threads with a great deal of interest, being sorely tempted but unconvinced that it was sound after doing my own investigation. My heart had said yes but my gut instinct, which prevailed, thought that it resembled a house of cards in too many ways; obviously, with the current collapse, I think my instincts were right. Yet, I am curious as to how they are actually functioning and if members really believe they have a future.

HCC pulled the standard DC trick – everyone has signed a Non-Disclosure Agreement and it’s all a big secret now – they lost 1/3 of their villas to foreclosures and cancelled lots of reservations that the members had made – part of being in a DC is a sense of adventure – "will the key actually open the front door of the DC villa or does the family sleep in the car tonight?" (That's my catchy phrase)

One interesting aspect is that the old membership fee of $80k to join has been slashed to $40k – a firesale I guess.

Beyond that it’s been hard to gleam what really is happening at HCC. After the founder went insane and did some very stupid things the members are hanging on – but they all seem to realize that their membership fee is gone and chapter 11 or 7 isn’t far behind. But hope is eternal.

 

[Lawlar]

Cheateau?

Perry: Thank you for posting such interesting information.

Are you aware of what happened at The Chateau at Heavenly Village – directly across from Timber Lodge? It was sold as a high-end condo/timeshare complex that was being built when I was there last year. Vail Resorts was involved but they withdrew last Spring.

The Chateau is a city block hole now (the foundation was built) and I believe their sales office took deposit on presales (which I hope were put into an escrow, but I have my doubts).

There must be an interesting story here, but I didn't find much with a Google seach, except that the Chteau is still promoting its sales on its Website.

 

[caribbeansun]

It's not that much of a secret - you can look at their web site and DC4MS and figure out what's happened.

They reduced their home portfolio from 35 down to 23 with essentially the same number of members. They reduced the home numbers sufficiently that they cannot by their own information made public during the "insane" time actually honour the number of days members are entitled to in the contracts. They cite the 70% usage figure - I say - you can't sell what you can't deliver. They essentially sold something like 110-115% of the total available days.

Many reservations were canceled with no form of compensation for the losses to members of airfares, etc.

It would seem that some members have decided to cut their losses and hit the resignation list and not pay dues based on a post to this thread on DC4MS - see post #10. It further appears that there is to be a further reduction in the number of homes. Again, that was made public by management previously and is pretty obvious - no dues, no homes.

The cut in prices seems to be designed to swap out non-dues paying members for dues paying members although I'm hard pressed to understand why anyone would join the club at this point in time with how unstable the situation is and is likely to continue to be into the foreseeable future. My own cynical take on this is that management is merely doing the window dressing to try to avoid lawsuits claiming they are not making a effort to allow members to exit the club.

HCC pulled the standard DC trick – everyone has signed a Non-Disclosure Agreement and it’s all a big secret now – they lost 1/3 of their villas to foreclosures and cancelled lots of reservations that the members had made – part of being in a DC is a sense of adventure – "will the key actually open the front door of the DC villa or does the family sleep in the car tonight?" (That's my catchy phrase)

One interesting aspect is that the old membership fee of $80k to join has been slashed to $40k – a firesale I guess.

Beyond that it’s been hard to gleam what really is happening at HCC. After the founder went insane and did some very stupid things the members are hanging on – but they all seem to realize that their membership fee is gone and chapter 11 or 7 isn’t far behind. But hope is eternal.

 

[pwrshift]

Resigning members of HCC have to wait for a 'two-in, one-out' process. That probably means, if you're number 50 on the resignation list, you'll have to wait until 100 new members join before having a hope (?) of getting your membership fee back. New membership signups will be minimal IMO due to the economy and HCC's reputation.

HCC apparently will permit resigning members to stay on the resignation list and use their limited availabilities as long as they continue to pay dues. No dues - no use, even though HCC owes each member thousands of membership dollars. They have members over a barrel. Not nice.

Now they've cut membership fees in half, a slap in the face of current members who paid more. Guess they need fresh cash, but if it takes 2 new members to pay off a resigning member, how many does it take with the fee cut in half?

HCC management is not known for communication skills. IMO they have not accepted 'transparency' and resent it as a private company. It will be interesting to learn if they let the membership know exact new sales figures and member repayments. Don't hold your breath.

Perry is right ... members have little hope of getting their membership fees back unless a lot of new members sign up. At least $50 billion isn't at stake, but it seems like the same game. HCC has played dangerously with their members, most of whom are intelligent well-to-do people who will be supportive up to a point at which the collective fireworks will begin.

...The cut in prices seems to be designed to swap out non-dues paying members for dues paying members although I'm hard pressed to understand why anyone would join the club at this point in time with how unstable the situation is and is likely to continue to be into the foreseeable future. My own cynical take on this is that management is merely doing the window dressing to try to avoid lawsuits claiming they are not making a effort to allow members to exit the club.

 

[vivalour]

So how is HCC actually functioning these days? Are members back to paying the old annual dues, or were they increased? And, now that the number of homes were decreased, are there enough weeks available for each member to actual book all of his/her ownership weeks, or are they depending on a 70% usage or something in that area?

I followed these threads with a great deal of interest, being sorely tempted but unconvinced that it was sound after doing my own investigation. My heart had said yes but my gut instinct, which prevailed, thought that it resembled a house of cards in too many ways; obviously, with the current collapse, I think my instincts were right. Yet, I am curious as to how they are actually functioning and if members really believe they have a future.

PerryM does not belong to HCC, so I would take his entertaining observations with a grain of salt. There are many inaccuracies and over-dramatizations in his posts on this thread. Furthermore, he is not up-to-date on HCC events.

Speaking from my own family's experience, we have been HCC members for a little over a year now, and have enjoyed four trips so far, with two more coming up. It's true that destinations have been reduced -- not a good thing -- but this relates to the falloff of paying members who resigned from the club either before or after recent events. I have found that for our two-week plan, availability has been good.

HCC is now in "stabilization" mode with a good core of members still paying dues and supporting the club's survival. I wouldn't say that managment did a stellar job to get into this situation, but they appear to be working hard to keep the club going by: radically slashing operating costs, increasing annual dues by a few percentage points, consulting with a member advisory board, re-negotiating mortgages where they were locked into high-interest rate loans, requiring annual dues to be paid month-by-month (not a year ahead as PerryM states) to ensure a dependable cash flow. There were no bank forclosures on property, however, management decided to drop some property leases, and list some properties for sale.

How do we feel about HCC's future? We are not obsessing about this, since we joined HCC to enjoy first-class vacations, not to add extra stress to our lives. In many ways the club is functioning as it did before. With a realistic business plan, one that doesn't depend on wishful thinking, we think it has a chance at survival and maybe even growth at some point. Time will tell.

 

[pwrshift]

Where did the $20,000,000 go?

Trust is the key to HCC's continuation. It is no longer the club members joined. Management doesn't seem to trust the members yet totally depends on them for survival. Members are tired of non-communication, secrecy, amateurish management, and not REALLY knowing what is going on. In September they promoted all the new openings on the horizon and a month later announce their failure to a stunned industry.

Members who resign within their first year are 'entitled' to a 100% refund of their membership dues - those who continue to pay dues into the 2nd year based on 'hope' will find that HCC's obligation to them drops to only 80% - which means HCC gets to keep $6,000 more of a $30,000 membership fee obligation...and also gets another $4,000 or so in annual dues for availabilities that may not be there. No wonder HCC wants members to continue! Each continuing member commits to a full year of monthly dues payments, whether or not they can get any decent vacation time and if they don't pay, HCC doesn't have to pay the membership fee back. Nice. Of course, there's no guarantee that any resigning OR continuing member will be reimbursed for any portion of their reimbursement, especially if they fail.

I don't believe the availability situation is worsened only because of resigning members, but that it is the result of HCC's need to survive on annual dues as new sales are probably non-existent...even at half price right now! Even in the beginning, HCC had issues with prime time availability as few of their locations had all-year seasonal appeal. In addition, it seems that all DC's base their plan on members not taking their full number of holidays: While the members with 21 days a year or less probably take all their time, it is hoped that those with 45 days don't -- at least that seems to be the plan.

These are private companies, all of whom resent having to tell members what they are doing with their membership funds. Some $20 millon is missing from HCC membership fees and instead of buying homes with the funds they took out mortgages as high as 13%. The whole plan was to suport the club with new membership fees in order to privide for the whole membership ... like the Ponzi scheme Perry outlines. A plan for failure IMO.

Honestly, would any prospective member today put money in HCC knowing what has happened? They have done great harm to the whole DC concept as the industry is continually in for bad news ahead.

 

[TarheelTraveler]

Good destination club review of 2008 developments from the Veras Group:

2008 Destination Club Review | The Veras Group

It was a very tough year, but I do think that we sometimes forget that not all is bad in the DC industry. Some of the events were bound to happen, bad economy or not (i.e., some failed launches and some failed clubs based on ridiculous models), but I am confident that significant portions of the industry will survive and eventually prosper.

 

[pwrshift]

I think you're right and that a number of DC's will fall by the wayside -- the queston is what ones as membership fees are very high and the economy in such shape that few people will take the gamble IMO. If it goes on too far, very few DC's will succeed...at least with their current models.

I used to get at least one call a week from a DC salesman - I haven't had one in many weeks now. Not that I'm missing the attention, it was always fun to see how sharp their selling skills were and hear their competitive reactions to my questions.

 

[Holly]

I just got a "trial offer" in the mail for Exclusive resorts. Seven nights for $8900...HA!

I wish them good luck with that.

 

[taffy19]

I think you're right and that a number of DC's will fall by the wayside -- the queston is what ones as membership fees are very high and the economy in such shape that few people will take the gamble IMO. If it goes on too far, very few DC's will succeed...at least with their current models.

I used to get at least one call a week from a DC salesman - I haven't had one in many weeks now. Not that I'm missing the attention, it was always fun to see how sharp their selling skills were and hear their competitive reactions to my questions.

I have a feeling that this industry will be regulated too just like timeshares are. The public will demand it. I don't like Government interference with everything we do but it is necessary sometimes as it has proven here. I don't know if it was meant to be a ponzi scheme but the bad economy sure didn't help them.

I too was reading these threads with much interest and almost regretted that we had bought our oceanfront timeshare in Maui because the fee to become a member here was much lower than our purchase price and the difference could have paid many years of maintenance fees with the club. We could have still joined but the high yearly maintenace fees stopped us. You don't always want guests with you and would they even share the costs? I wouldn't count on it. The homes looked beautiful in wonderful locations but now I am so glad that we didn't buy this membership but still have the Marriott timeshare we really like.

I only hope that it will turn out OK for the members and that the club will turn around and you can continue taking these fabulous vacations. Keep on posting them and the pictures too.

Brian, I thought you had bought there too but after reading this, I don't think you have.