posted by Desties on Oct 30
Is there a white knight waiting in the wings to scoop up High Country Club?
I’m hoping somebody does, if only to take a hit for the team so the industry doesn’t have to go through the whole Tanner & Halley fiasco in winning back consumer credibility.
And by taking “a hit for the team” I don’t mean that HCC wouldn’t be a great collection of properties and members. It would. The problem is that it’s unlikely that a rational club would buy in. Since the mortgage holders are owed more than the properties are worth, it would be cheaper for any club to just buy new properties instead of inheriting homes that are underwater. Dues-paying members are great to have, but most clubs would have to jack those dues to make it commensurate with what current members are paying in their own clubs. Perhaps more importantly, is that they would be acquiring members who have expectations of getting their deposits back with the acquiring club not getting anything in return.
After Ultimate Resorts acquired the T&H properties in bankruptcy, it offered its members the ability to join the club, with the expectation that they would get most of their original deposit back if they stuck around for another 5-7 years. The math made sense on Ultimate’s part at the time, becasue it had a ton of new properties and needed bodies to fill them. I don’t know if a club would make such a generous offer this time around. It costs plenty to acquire a new member, but clearly not the amount of any initial deposit.
So what’s it going to be? Is someone going to step up and take a hit for the team? Steve Case? Are you angling for karma points?
posted by Desties on Oct 27
Today’s radical “success plan” strategy implemented by High Country Club should bury to rest one of the destination club industry’s biggest assessment tools: the net asset test. The balance sheet test, which clubs use to measure their fiscal fortitude, simply divides a club’s net asset value by the amount of member refundable deposits.
To be a member of the Destination Club Association, a club must maintain an asset test rating of 66%. In other words, it must have enough assets to cover 67% of the refundable deposit. At the start of 2008, High Country Club was proud to have an asset test score in excess of 100%.
Today?
“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,” writes HCC CEO Christian Kirschner, if the club should have to liquidate if less than 75% of the members agree to the new structure.
How can a company go from more than 100% to less than zero?
There are two major reasons. The first, obviously, is the real estate market. Since clubs like HCC finance most of their purchases, once the assessed value of the property dipped below the down payment and accrued principal payments, the asset turned into a property with negative equity.
The less obvious flaw in the asset test is that it allows a club to book a value at 100% of its purchased value for the first two years. In other words, even though a property in the Outer Banks could have been purchased for $1.2 million a year ago and is worth closer to $0.8 million today, asset test rules allow it to be recorded at $1.2 million until next year.
HCC took a realistic assessment of its asset values in coming to grips with today’s decision. Other clubs should follow suit.