How is the destination Club market holding up?

[TarheelTraveler]

I agree Boca to some extent, but I don't think you can lump all DCs together, just like you can't say every bank is likely to go under. It does, however, amaze me that some DCs can sign up members without being willing to produce detailed, audited financials.

 

[BocaBum99]

I agree Boca to some extent, but I don't think you can lump all DCs together, just like you can't say every bank is likely to go under. It does, however, amaze me that some DCs can sign up members without being willing to produce detailed, audited financials.

So which financial institution are you purchasing stock in today?

 

[TarheelTraveler]

So which financial institution are you purchasing stock in today?

I bought and sold financials over the last two weeks. Will probably do so again (maybe not today though and I might focus on certain regionals this go round).

 

[vivalour]

Hedge funds are not my thing, but I don't see the direct connection between DCs and the hedge fund industry -- which IMHO is based on pure speculation. DCs, I would say, are more about calculated risk.

 

[BocaBum99]

Hedge funds are not my thing, but I don't see the direct connection between DCs and the hedge fund industry -- which IMHO is based on pure speculation. DCs, I would say, are more about calculated risk.

The direct link is that investors in Hedge funds are the same target market for purchasers of memberships in DCs. Hedge funds are taking a bath in the current market conditions.

The key question is this. Given their portfolios are taking a big hit, are the affluent likely to continue to make luxury purchasers like yachts, jewelry, country club memberships and DCs?

Or, do people on this board actually believe that the DC industry is immune to the current state of the financial markets?

"Two men enter, One man leaves." In rethinking this rule, it could help out current members. If the market dries up and there are very buyers of DCs, at least they won't be forced to liquidate property to return deposits. In retrospect, that seems like a good thing. The deposit may be devalued significantly, but at least it won't be liquidating like hedge funds are today.

 

[vivalour]

The direct link is that investors in Hedge funds are the same target market for purchasers of memberships in DCs.

How do you know? I would have thought it is a pretty diverse market of high-income earners of all kinds, all ages, and all genders.

Hedge funds are taking a bath in the current market conditions. No kidding.

The key question is this. Given their portfolios are taking a big hit, are the affluent likely to continue to make luxury purchasers like yachts, jewelry, country club memberships and DCs?

There's affluent and there's super wealthy. Though I'm not personally in this bracket I know at least two families who have incomes of at least several hundred thousands of $$$ monthly, rain or shine. The price of luxuries is small change for them.

Or, do people on this board actually believe that the DC industry is immune to the current state of the financial markets? Who knows? Time will tell. There's lots of fear & panic out there because we're in uncharted financial territory. The good companies are being trashed with the bad as the hedge funds "de-leverage" and portfolio managers sit it out. But we still have to live our lives.

"Two men enter, One man leaves." In rethinking this rule, it could help out current members. If the market dries up and there are very buyers of DCs, at least they won't be forced to liquidate property to return deposits. In retrospect, that seems like a good thing. The deposit may be devalued significantly, but at least it won't be liquidating like hedge funds are today.

Hopefully this is short-lived and five years from now it will just be a bad memory.

 

[TarheelTraveler]

I'm willing to bet that consumer spending will slow dramatically. Discretionary items will be hurt the worst. I think you will see a tiering effect in real estate. Vacation house spending will drop dramatically, and DCs also but to a lesser extent (because the outlay isn't as large and it is still a relatively new concept in growth mode).

 

[BocaBum99]

Hopefully this is short-lived and five years from now it will just be a bad memory.

I take it that you are one who believes that the DC industry is immune to the current state of the financial markets.

If you don't think that Hedge Fund inventors are in the same market segment as DC purchasers, then a discussion on the topic will probably not be fruitful for either of us. I just leave it at that.

 

[vivalour]

Shaken confidence in DCs?

I take it that you are one who believes that the DC industry is immune to the current state of the financial markets.

If you don't think that Hedge Fund inventors are in the same market segment as DC purchasers, then a discussion on the topic will probably not be fruitful for either of us. I just leave it at that.

I don't want to beat this one to death, Boca, but to clarify:
I don't at all think the DC industry is immune and wouldn't be surprised if sales stall/slow for most DCs till at least next spring. Hopefully most clubs with a 4-5 year track record behind them have patient investors (backers) with deep pockets and can weather the storm even if memberships stall or some members bail out.

Not sure at all about your second point. Do you mean that you believe hedge fund investors are the major backers of all/most DCs? Or do you mean you think they are the bulk of DC members?

I would agree with Tarheel here -- pls see his posts above. I revived this topic simply to see if anyone (prospective members, for example) had insights/experience re DCs being more or less transparent on their business financials in this turmoil.

 

[NeilGoBlue]

I agree that on the surface if you take 4 trillion dollars out of the economy.. you'd think that DCs would suffer.. but..

Sometimes logic works backwards.. for example.. when I was thinking of buying my house back in 01..the market was crashing..something like 8 trillion in market cap was lost.. I said.. 'great, housing prices will be lower.. you can't take 8 trillion out of the economy, lay off all those tech people and have it not affect housing prices.. but low and behold.. housing went up.. and went up for years.. I was dead wrong.

It could work similar for DCs.. instead of people committing to buying a second home for cash or financed.. they might 'downscale' to a DC and get the same result with substantially less money and less overhead. I know it doesn't seem logical, but it wouldn't surprise me...

Another example.. I own a business where I lend money to real estate investors. I borrow money from people so that I can relend it.. You'd think given the current market conditions people would be pulling their money out of my company and running for the hills..but once again logic defies.. not only has nobody pulled their money out... we have more inquires than ever about putting money IN!.. all in the last two weeks... they perceive us as safer than the market.. or even banks.. (plus we pay a substantially higher rate and we are doing well)

Who would've thunk it?

 

[Floridaski]

People do strange things

We are among many of the people that are concerned watching our investments move in the wrong direction.

But we own a condo in River Run in Keystone. I am very concerned about the income level that it needs to produce this year.

Well today somebody booked it for 6 NIGHTS OVER CHRISTMAS AT $ 715.00 PER NIGHT. Are they nuts? Do they not watch CNN or read the newspaper? I really do not care, they left their 50% non-refundable deposit and I am sure they will enjoy themselves.

So, it appears that while we may have a difficult year and all things will suffer - people will still spend money!

 

[pwrshift]

If the largest Timeshare and Fractional developers are having difficulty you can bet DC's are having trouble too. It will be interesting to see how many of them fail over the next year alongside the banking industry. Even the wealthy are hoarding cash right now ... not handing it over interest free and unsecured to private companies to play with. Compared to this time last year when every DC was raising membership fees Nov 1st, only two that I know of have announced increases this November and I've been told they are now wavering on this decision. A telling sign IMO that the industry could be in trouble. We'll know for sure by this time next year.

 

[vivalour]

If the largest Timeshare and Fractional developers are having difficulty you can bet DC's are having trouble too. It will be interesting to see how many of them fail over the next year alongside the banking industry. Even the wealthy are hoarding cash right now ... not handing it over interest free and unsecured to private companies to play with. Compared to this time last year when every DC was raising membership fees Nov 1st, only two that I know of have announced increases this November and I've been told they are now wavering on this decision. A telling sign IMO that the industry could be in trouble. We'll know for sure by this time next year.

IMO the root of the trouble right now is in the tight lending situation. My own take is that the majority of DC purchasers can pay cash and do not have to borrow for a membership. Of course, those considering DC memberships may also be more careful over the next year -- they will want solid info on financials rather than smoke and mirrors from DC companies -- but I think you are looking at a different demographic from timeshares. Not raising membership fees right now is probably smart marketing -- I think that any retail business is very careful now while consumers are especially price-sensitive. Maybe a few of the high rollers on DC payrolls will get cut, though....

 

[vivalour]

We are among many of the people that are concerned watching our investments move in the wrong direction.

But we own a condo in River Run in Keystone. I am very concerned about the income level that it needs to produce this year.

Well today somebody booked it for 6 NIGHTS OVER CHRISTMAS AT $ 715.00 PER NIGHT. Are they nuts? Do they not watch CNN or read the newspaper? I really do not care, they left their 50% non-refundable deposit and I am sure they will enjoy themselves.

So, it appears that while we may have a difficult year and all things will suffer - people will still spend money!

Sounds to me like a good deal for the renters! They probably don't live paycheque to paycheque and pay off their credit cards every month. This will be a very tough lesson for people who have to live on credit, while the cash savers will benefit from the deals out there.

A friend recently told me about a conversation he had this year with a speculator in U.S. real estate who "bought" 12 houses, hoping to flip them. When the market turned bad, he had to take on extra jobs to carry the mortgages -- or lose the houses to the bank. Pure idiocy.

 

[Floridaski]

I am glad you think it is a deal.

I am really glad you think it is a deal, I personally would not pay $ 715.00 per night for a condo. They also pay 5.68 booking fee, 6 % Keystone tax. Their Christmas vacation, just for the condo is going to run them

A TOTAL OF $ 4886.40 FOR 6 NIGHTS!


We are very relieved that we are getting holiday bookings as most of our income comes in over the ski season. But, I was really shocked that somebody would put down a 50% percent deposit on this large of a vacation expense with the economic turmoil.

It is obvious that it is somebody who is not worried or has enough cash on hand to just go ahead and live their lives. I am glad there are still folks out there that have enough confidence to plan their vacations. We also got an expensive March week booking this week - another surprise.

Personally I am being a little conservative in our larger purchases. But, we are still moving forward - just perhaps thinking a little longer about spending the money. So, I would think the DC demographic would be similar to the higher end condo renter. If they have the money they will still take their vacations.

 

[tombo]

I think this article about Ritz-carlton, Marriott, and Exclusive resort's joint project shows that this economy is very rough on everyone and everything.

http://pacific.bizjournals.com/pacific/stories/2008/09/29/daily62.html

 

[travelguy]

I believe that the Destination Club member is less effected by the fear of purchase than the average timeshare purchaser. DC members tend to have more discretionary income and shift that income to more fulfilling experiences in tough economic times. I also believe that the timeshare purchase (from the developer) is more impulsive than the due-diligence intensive DC purchase. I'm not saying that the economy won't affect DCs, just that I believe that timeshares will be hit much harder than DCs.

Here are what I believe there are the four schools of thought regarding Destination Club purchases during the current market conditions:

1) Those prospective DC members who are paralyzed by the current financial events, or at least the media and political representations of those events, and will not take action on DC membership until they conquer their fear of discretionary expenditure.

2) Those prospective DC members who would have normally purchased a second or third vacation home in the Bull market but have now realized the value of a Destination Club membership in lieu of the luxury home ownership headaches and loss of property value. (I don't believe there are many potential DC purchasers that will downgrade to a timeshare).

3) Those prospective DC members who are unaffected by the current economic crisis (both real and as portrayed on TV) and are buying a DC membership for the positive reasons that some of us became DC members (value, quality of properties, numerous and growing locations, ease of reservation, quality of customer service, etc.).

4) Those prospective DC members who have given up on the investment markets, liquidated their portfolios, and are purchasing goods and experiences that have "real" value to them. (Like a new DC membership).

I base my unscientific hypothesis on several recent conversations I've had with prospective DC members and my years of owning a high-end luxury consumer electronics retail chain during recessions in the 1980s through the tech bubble burst of the early 2000s. You'd be amazed by the vast majority of luxury purchasers that are not as affected by the economic news as those of use who are market watchers. As long as there are Americans, there will exist the sales of high-end discretionary luxury goods and experiences.

 

[BocaBum99]

Given the HCC announcement of a new survival plan, does anyone want to update their position on the DC market?

5) In the event the business is liquidated, will there be anything left for members?
At the end of 2007, our net asset test showed that the net assets of HCC exceed the amount of our member refundable deposit obligations. During 2008, we have seen a significant decrease in our property values ranging from 20% - 50% off of our 2007 appraisals, which means that the equity in our portfolio has greatly diminished over the past 10 month period. In addition, we anticipate that the real estate market will continue to decline over 2009. Due to the current economic conditions, we believe that once the mortgage holders are paid there will not be any equity left for us to refund to our members. Management and investors of HCC would not receive any compensation from a liquidation unless our members were fully paid their refundable deposit.

It appears that the liquidation value of HCC member deposits is now ZERO. And, the HCC management is planning on ZERO new sales over foreseeable future. They did remove the 2 in, 1 out rule. But, in this market, who is going in?

 

[travelguy]

Given the HCC announcement of a new survival plan, does anyone want to update their position on the DC market?

Yes! Based on the last month of chaos in the world economic markets and my own personal chaos, I'd like to update my position on the DC market, the financial markets, the fractional market, the timeshare market, the CDS market, the condotel market, the farmer's market, the real estate market, the foreign markets, the commodities markets and any other market I can think of. My official position now is that they are all "down" and will continue to be "down" for "awhile".

 

[alvin]

it's certainly going to get worse before it gets better. look at what's happened to other resort/destination projects around the country in just the past month. and this is by no means a comprehensive list, but just some of the stories i've been following...

tamarack resort in idaho falls into receivership.
ritz club in maui loses funding.
hcc proposes restructuring.
intrawest barely escapes bankruptcy (i'd imagine the upcoming winter olympics was a major motivating force behind them avoiding chapter 11)
rumors are that the vail plaza hotel is nearing foreclosure, which if true certainly won't help the new four seasons and ritz under construction in vail village.
meanwhile, talisker corp recently outbid vail for control (and most importantly, development rights) of the canyons ski resort in park city. but considering that the big high-end Promontory development outside park city recently filed for bankruptcy, not too mention the growing inventory of unsold high end homes and condos in deer valley (talisker's primary market to date), they may have bitten off more than they can chew too.

And keep in mind, the real recession has barely even begun!

While the premiere resort towns like Vail, Park City, Maui, etc, and the prime areas of NYC, SF and LA have held up well so far, it's tough to argue they'll be immune much longer, especially with wall street and hedge funds hemorrhaging money, and Europe and much of the developing world in arguably worse shape than we are.

HCC has stated their (arguably second tier) properties' values are down 20% to 50% as of last month. Seems likely the upper tier DC's properties won't be far behind. Survival of the fittest will likely ultimately boil down to survival of the least leveraged...

 

[tombo]

What you bought isn't what you will own even if HCC survives. Here is their quote:

"We will require our members to sign an Addendum to their membership agreement by November 14th in order for us to execute our Success Plan. In the event the vast majority of our members do not agree to the Success Plan, we will be forced to begin shutting down the business on the 17th. Members who choose not to sign the Addendum will unfortunately have their reservations canceled and will be placed on the resignation list. "

They are using severe intimidation to try and get all members to give up rights in the club that they purchased. Your choices are sign, give up benefits, and pay higher annual dues or no reservations for you and you will no longer be a member. Also they use a less than subtle threat that unless at least 75% of the members sign the new rules the entire club is history along with your money. If 75% don't sign they will shut the "club" down and by their own admissions there will not be enough money to give the members refunds. From many previous posts this is apparently not a problem because DC owners have more discretionary income than timeshare buyers and won't miss the $40,000 to $70,000 they paid in membership fees when they joined.

The owners of HCC have decided what will be done with HCC and how they will do it without a vote or discussion from the paying members. I am sure the "success plan" that members are being forced into signing will give the owners of HCC the right to change many things now, many more things in the future (whenever they deem it necessary), and it will probably have clauses signing away member's rights to sue for damages. You might as well throw your original contract away once you sign the addendum.

I think it is obvious that the membership club format was full of risk and peril as many of us have stated in the past. Yes all timeshares companies are having hard times, but none of the major developers have told their timeshare owners that they will no longer be able to vacation as they were promised when they laid down their money. If you purchased a timeshare week, you still own a timeshare week. If you purchased a membership in a DC you own nothing, of course you never did own anything, and that has always been the problem with the non-equity DC's.

HCC members should probably take their vacations as quickly as they can, while they still can.

 

[Troopers]

Phew!

I'm glad I didn't buy HCC a three months ago.

 

[pwrshift]

All of a sudden resale timeshares and fractional ownerships look a lot better. Firms like Marriott and Starwood will (probably) be around tomorrow once the storm is over. This may not be the case with DC's.

It is, indeed, a sad situation for all HCC members and for the DC industry as a whole. But, HCC may be just the start of what lies ahead for members of all non-equity privately-owned DC's. Their promise of a guaranteed return of 75% - 100% of the initial membership fee now appears to be not worth the paper on which they are printed.

 

[Sir Newf]

....from Boca's #43 posting above: "Due to the current economic conditions, we believe that once the mortgage holders are paid there will not be any equity left for us to refund to our members. Management and investors of HCC would not receive any compensation from a liquidation unless our members were fully paid their refundable..."

Question on this- so, where would the equity monies go? If all the funds are used to pay motgage holders, would there not be some equity once they are paid? Who gets that equity?

Best of luck to all members, I sincerely hope it works out OK for each of you.

 

[tombo]

....from Boca's #43 posting above: "Due to the current economic conditions, we believe that once the mortgage holders are paid there will not be any equity left for us to refund to our members. Management and investors of HCC would not receive any compensation from a liquidation unless our members were fully paid their refundable..."

Question on this- so, where would the equity monies go? If all the funds are used to pay motgage holders, would there not be some equity once they are paid? Who gets that equity?

Best of luck to all members, I sincerely hope it works out OK for each of you.

From this one can either assume that they were over leveraged, under funded, or that they took every dollar they received that was not obligated for expenses and paid themselves as though that money was profit. If you spend all income received except what is needed to pay current obligations when times are good, you will have no reserves left when times are bad. It appears that they didn't save for a rainy day or simply mismanaged the company and ran it into the ground.

Reading between the lines it also appears that the owners of HCC are not willing to take the current depreciation loss on the properties they purchased for themselves with the member's money. I am sure that they would have had no problem enjoying their profits if the properties they purchased had increased in value. If they weren't trying to change the rules or liquidate, their debt obligations would remain the same, and they should have enough members to cover the current expenses. However they have decided that 75% of the owners must capitulate to their demands or they will sell everything at current values covering every penny of their property value loss with current assets before attempting to refund a dollar to members. The owners will leave with their salaries and bonuses from past years, the owners will leave with no personal debt remaining, and they will leave with all of the member's cash either spent or missing.

I especially feel sorry for the HCC members who financed their membership fees as they will still be making payments with HCC gone, no chance of recouping their huge losses, and no "pre-paid "vacations coming from HCC now or in the future. Some poor people will be paying for a non-existent HCC for 30 years.
This is a TUG post from the past showing HCC's great financing options: "For qualifying members, JP Morgan Chase will establish a home equity line of credit with a variable interest rate, which will rise or fall according to changes in the Federal Reserve Rate. While most home equity lines of credit do not generally have fixed interest rates, JP Morgan Chase also offers an option that allows you to lock in a fixed interest rate on all or a portion of your line of credit balance.

This financing option lets you leverage your membership fee over a 10, 20 or 30 year payment period. For example:

Membership Fee - $25,000 - $40,000 - $50,000 - $70,000
10 year (APR 1) - $312.38 (8.68%) - $499.80 (8.68%) - $624.75 (8.68%) - $855.97 (8.18%)

20 year (APR 1) - $223.17 (8.89%) - $357.07 (8.89%) - $446.33 (8.89%) - $602.61 (8.39%)

30 year (APR 1) - $199.54 (8.91%) - $319.26 (8.91%) - $399.08 (8.91%) - $533.78 (8.41%"

Either way it is sad for the members, but non equity DC's were always a disaster waiting to happen.