Joining a destination club can often be a time consuming process. Not only do you have to compare multiple clubs to one another to find the club that is best suited for your needs, but each club also uses different terminology and phrases to describe their offering and membership benefits.
Accredited Investor
Some destination clubs, like Equity Estates, require you to be an accredited investor before being able to work with you regarding membership. The federal securities laws define accredited investor in Rule 501 of Regulation D as:
- a bank, insurance company, registered investment company, business development company, or small business investment company;
- 2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
- a charitable organization, corporation, or partnership with assets exceeding $5 million;
- a director, executive officer, or general partner of the company selling the securities;
- a business in which all the equity owners are accredited investors;
- 6. a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase;
- 7. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
- 8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
Equity Destination Clubs
Unlike the majority of destination clubs, which are Non-Equity Clubs, Equity Destination Club members actually own a share of the club and/or properties. Members have access to the properties in the club’s portfolio and also can benefit from the appreciation in the property value. Some of these clubs are limited in their marketing abilities as they can only sell to Accredited Investors and may have to adhere to REIT regulations.
Full Member Equivalents
Destination clubs that have multiple membership plans that include different levels of nights included, typically refer to their member to property Ratio in terms of Full Member Equivalents. This is to account for the fact that members with different membership plans have different levels of usage, and some form of a baseline is needed to calculate the club's member to property ratio. This calculation is often difficult to compute as clubs may change what constitutes a “full member.”
A club sets a definition of a full member by assigning a certain number of nights that are used by a theoretical member. For example, if the number is set at 28 nights of usage per year, each 14 night member would be counted as a half-member in their Member-to-Property Ratio calculation.
Member to Property Ratio
Found by taking the total number of members divided by the total number of residences, this number has long been the benchmark for providing a rough overview of availability within the destination club sector. Ranging anywhere from 5:1 to 12:1, the Member-to-Property Ratio offers a broad view of the club’s availability. As many firms offer different Membership Plans with different levels of nights included, this number can be easily misinterpreted. For example, many destination clubs offer membership plans that only include 14 nights of usage per year. If the club sold a great deal of this membership plan, their Member-to-Property Ratio would appear alarmingly high even if the club had a favorable actual occupancy rate. The metric Full Member Equivalent was created to compensate for this problem by finding the number of nights used by an average member and multiplying that by the number of members. This number is then divided by the number of properties to find a more accurate Member-to-Property Ratio.
Net Asset Test
A measurement mechanism created by the Destination Club Association, the Net Asset Test measures the total assets of a club against the total value of the membership fees. To pass the test, clubs must have assets that equal or are greater than 66% of the membership fee obligation.
The calculation includes adding the club's cash, marketable securities, and real estate assets and subtracting debt secured by real estate and refundable membership deposits.
Non-Equity Club
The more common destination club model, non-equity clubs dominate the majority of the destination club industry. Members can access all of the homes in the portfolio, but do not have any ownership interest in the club or its properties.
Non-equity destination clubs have many benefits.
Planned Occupancy Rate
The percentage of a club's properties that the club models to be occupied by its members each year. This differs from the actual occupancy rate as the planned occupancy rate may differ drastically from what each club has modeled.
Other metrics such as Member to Property Ratio can also help provide an overview about the availability at each destination club.
Availability is a crucial component in selecting the destination club that is best for you.
REIT
An abbreviation for Real Estate Investment Trust. By definition, a REIT is a company that owns, and in most cases, operates income-producing real estate. A REIT must distribute at least 90% of its taxable income to its shareholders each year in the form of dividends and must invest at least 75% of its total assets in real estate.
Common questions
What is an equity destination club?
A club whose members own a share of the club or its properties, so they can benefit if property values rise. Most clubs are non-equity clubs, where members can use the homes but own nothing. Some equity clubs can only sell to accredited investors.
What is the Net Asset Test?
A measure created by the Destination Club Association that compares a club's assets with what it owes members. A club passes if its cash, marketable securities and real estate, less debt secured by the real estate, equal at least 66 percent of its refundable membership deposits.
What is a member to property ratio?
The total number of members divided by the number of homes, usually between 5:1 and 12:1. It gives a rough idea of availability, but it can mislead when a club sells many plans with only a few nights a year.
What is a full member equivalent?
A way to count members on plans with different numbers of nights. The club defines a full member by a set number of nights, for example 28, and counts a member on a 14 night plan as half of one, so that the member to property ratio can be compared fairly.
Discussed in Deer Valley Was Always on the Wish List and When the Club Folds, the Houses Still Have to Be Emptied, from The Ledger.