Destination Club News
Equity Estates Enjoys Success Despite Economy
Date: February 18, 2008
In what was a chaotic fourth quarter to 2008 and introduction to 2009 for the destination club industry, including High Country Club filing for Chapter 7, Lusso Collection filing for Chapter 11 and subsequently Chapter 7, and nearly every club making significant reductions in staff and sales and marketing expenditures, one company managed to record their most productive month and quarter in the company's history and continue to add luxury real estate to their portfolio.
The Veras Group met with Adam Capes, President and Co-Founder of Equity Estates, to discuss the state of his company and the bright outlook he has for the fund.
The Veras Group: With other clubs budgeting for no new sales in 2009 and into 2010 and calling new sales "non-existent" over the past several months, what has Equity Estates seen in the last quarter of 2008 and into 2009?
Adam Capes: We had our best quarter ever in the last quarter of 2008, and for the full year we grew 50 percent from our 2007 numbers. In December alone we brought in $2.5 million in member interests.
The Veras Group: In 2021 the real estate holdings will be sold off. Could you describe the wind down process?
Capes: We have a five year window to liquidate some or all of the fund's real estate holdings. We expect a normal selling market, but if we are in another real estate downturn, the five year window allows us to wait for real estate to recover. Likewise, if we see a bubble in 2019 or 2020, we have a fiduciary responsibility to our business partners and could contact our members about the opportunity.
The Veras Group: What does a member receive after joining Equity Estates?
Capes: To evidence their ownership, they sign a subscription agreement and an admission amendment to the operating agreement that admits them as a memeber in Equity Estates Fund I, LLC. This LLC owns all of the real estate that we purchase.
The Veras Group: What was the occupancy level for 2008?
Capes: I haven't seen the aggregate numbers for 2008 quite yet, but we are always more concerned with a go forward basis. I would guess we would be at the 50 percent occupancy level for last year, maybe even slightly lower, as our average member to property ratio during the year was under 6 to 1.
I have been told of several destination clubs who already have the ski season of January through March of 2010 almost entirely booked. Our members can book as far into the future as they want and I believe you could count all of our 2010 reservations on one hand right now. Most of our members' trips are booked about three months in advance and our outlook for 2009 right now is about 75 to 80 percent availability.
The Veras Group: A lottery system is used for holiday reservations. Can you comment on the success this has seen?
Capes: We conduct two lotteries per year, one in July and one in January. Our July lottery is for holidays in the first part of the year and our January lottery is for the second part of the year.
We just did the lottery last month for the second half of the year, and nearly everyone that provided at least three selections got one of their top choices.
The Veras Group: Is Equity Estates at all interested in merging with or acquiring any other clubs or do you plan to continue your organic growth model?
Capes: We like our organic growth model and are bullish on our prospects for the coming years. There will be a flight to safety from members of struggling destination clubs that want to find a safer model.
We aren't looking for any mergers or being acquired or acquiring another club. We are also business people, so we always listen on behalf of our business partners. We don't close doors. If someone in the industry wants to discuss an idea, we'll listen, but we aren't out there looking for mergers.
The Veras Group: In addition to pursuing members from struggling destination clubs, do you think that you will acquire any properties from other destination clubs liquidating their assets?
Capes: There is an opportunity for us to acquire real estate from anyone where we can be in a destination that is popular with members. We are looking for trophy properties at a great value, whether that is from a bank foreclosure or someone who needs help or a destination club liquidation.
There are markets that are down 20 percent, even on the trophy properties we are looking for. Different markets have different discounts. The next 12 to 24 months are ideal for us to acquire fantastic real estate for our business partners.
The Veras Group: How does the business model at Equity Estates differ from other clubs that allows Equity Estates to thrive during these economic times?
Capes: To thrive in this industry, you need to be smart and lucky. We were smart to create this business model with little to no debt and have been lucky because it is perhaps the best time to buy luxury real estate in the past 20 years. Now we have all these potential new members who understand the benefits of an equity option.
Because of our model, we can keep our annual dues low and won't have to increase our annual dues to cover our operating costs. If we don't add a single new member, our annual dues still cover all the carrying costs and service costs on all of our homes, meaning our owner members can still enjoy the homes for many years to come.
***
In an industry that has seen more downs than ups in recent months, the business model used by Equity Estates may be the vanguard for a new era of destination clubs, built on financially stable operations and not dependent on continual membership growth or financial and credit markets.
For Equity Estates to record these banner months in arguably the worst months the destination club industry has ever seen, speaks volumes of both the Equity Estates business model and the fact that the destination club concept still remains viable during these lean economic times.
|
