I don't, still, follow this logic. How do we go to EE or AKRC (who took some of our money in the first place) and utilize their homes? They don't have enough to accommodate, so they have to buy. Especially if a bunch of us went over. Buying either means more debt, or really big checks for us to write. We're going to have to write a check most likely in any scenario, I'd think we first try to support our own membership and club and take advantage of the homes we have. Just remover the boundaries between premier - signature - elite - corporate and let people pay for their own usage. If there's more homes required and we're writing checks anyway we can always buy others. Maybe some of those not part of the CS loan will go for cheap in the liquidation?
The logic is this .... there is over $100MM in claims out there at the minimum to Capital Source. This is not counting trade payables, HOA fees owed, etc. In a reorg scenario, all these guys are going to get in line. Yes, some will take haircuts, but members on here assume we will dictate terms. The debtors, mostly CS in this case, will be dictating the terms. In a dream scenario for us, they agree to cut principal and accrued interest by 15%. So we owe $85MM still on a portfolio probably worth around $100-$115MM. Unfortunately, most of the value in the portfolio is on homes that have extraordinary operating expenses - Tuscany, NYC, Turks, Esperanza, etc.
But let's put that aside - and say a group can get around 1/2 of current membership to come together and form a NewCo and buy the portfolio from CSE. So approximately 600 members get together and say they will put new capital in to form a go forward Company.
What is the check the 600 have to write? Let's make it something palatable - $30,000 on average. That leaves the NewCo with $67,000,000 of debt. Let's assume that CSE is helpful again and allows the NewCo to pay interest only for the first year years at 8%. The carry cost on the interest alone per year would be $5.4MM or around $9,000 per member.
I have been told by various DC's, including UE, that the per night cost to run a home for a DC (utilities, housekeeping, general updates, etc.) is around $500. Before you scoff at that, realize that housekeeping (the big cleanup before and after a member comes to a house) runs at least $250 by itself - usually more. I am not sure how many homes NewCo has, but if it has 75 and members use the homes for an average of 175 days a year, the hard operating costs are around $6,562,500 (75x175x$500). This is another $10,938 per member.
Now, this does not count HOA fees, taxes and other mandatory expenses that are extremely high in a lot of these places. Let's assume $20,000 per home - and I think that is too low b/c I know that NYC, Esperanza, Tuscany and many other homes have crazy high taxes and HOA association fees. That is $1,500,000 or another $2,500 per person.
There are still more expenses you need people to run NewCo, to do an audit, to do updated appraisals, to maintain and update the website, to do a preliminary and final K-1 every year, etc. How much will that cost? I don't know - but it's not cheap. Someone can help me out with that number.
I have not included local hosts, shampoo, pre-stock, etc. That is all extra. Lastly, the big problem, Capital Source will want debt paydown (remember we assumed they and others already gifted $15MM or more in principal and payments) and they will probably want it soon. If you straight line amortize it over 15 years - its $4,500,000 or an extra $7,500 per member per year.
Add it all up the cost per year will be more than $30K per member without management and accounting overhead plus $30K more into NewCo upfront - and I know I am undershooting a lot of expenses.
Guys, we used to debate this on the old board all the time. It took me awhile to see the light, but the killer of this model is debt. A NewCo that has a significant amount of debt is still a bad investment for members IMHO.
I am not sure about AKRC, but for similar money on a PV basis, I know one could join EE on a 1/2 membership and have better homes and almost no debt. I did this math last year prior to joining. Don't get me wrong, I do not think a lot of people will sign up to do that either - b/c of the deposit required - but partnering with one of the other equity DC's would give NewCo a reduction in overhead and a better overall experience.
Sorry for the long post. Obviously, I am playing with complete funny money above - but I sincerely believe (from our research last year and new data from filings) that there is an outrageous amount of expenses that are unavoidable in the current portfolio construction - not counting the debt that comes with them.
Totally open to being wrong here...but I went through this during the assessment process and myself, and others, thought the math was not great for NewCo. Maybe things have changed....
