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How is the Credit Crunch Impacting Destination Clubs?
| Written by Amy Gunderson 10/09/2008 |
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Wall Street troubles reach all the way to Hawaii and the Caribbean, impacting a handful of new real estate developments purchased by destination clubs.
Last month, the developer of Kapalua Bay, a vacation home community on Maui, hit a snag when failed Wall Street bank Lehman Brothers didn’t pay out a portion of the construction loan funding the project. Lehman Brothers was also funding part of a real estate development in the Turks and Caicos.
According to a Securities and Exchange Commission filing last week by Kapalua Bay’s developer, Maui Land and Pineapple Company, Lehman Brothers’ failure to pay out the loan forced the partners in the development to put additional money into the project. While developers said they believe they will secure additional financing, failure to do so could push back the opening date slated for spring 2009. Construction is 80% complete. The development is not contractually obligated to provide preconstruction buyers, who have scooped up $310 million worth of Kapalua Bay real estate, with finished units until April 2011, according the filing.
Exclusive Resorts plans to purchase as many as 28 residences at Kapalua Bay, and has a 15% stake in the resort. “As a minority equity partner and purchaser in this exciting development, Exclusive Resorts remains supportive of the successful completion and opening of Kapalua Bay,” said Exclusive Resorts spokeswoman Christina Schleicher, in a prepared statement. “Obviously the current economic environment, including Lehman’s failure to fund a portion of its construction loan, creates challenges. However, we remain optimistic that this project will be completed and become a valued new destination for Exclusive Resorts members to enjoy.”
Earlier this year, Quintess, LRW announced it had purchased a five-home enclave within Molasses Reef, a Ritz-Carlton Reserve, a real estate development under construction on West Caicos. One of the lenders on the project was Lehman Brothers, and Quintess expects construction will be delayed as a result. While this one project faces delays, Quintess’ co-founder and executive vice president Ben Addoms says other real estate acquisitions have not been impacted and financing terms are still favorable. “All credit lines in place remain in place,” says Addoms. “Terms have actually improved slightly as interest rates are tied to LIBOR, which has dropped this year.”
Jim Tousignant, president and CEO of Ultimate Escapes says his club has not been affected. “We have not seen any direct impact to our business as a result of the credit crisis, including no impact on lines of credit, property acquisitions, etcetera.”
In fact, some clubs are not slowing purchases of new homes. Abercrombie & Kent Residence Club, for one, is adding a least four homes to its portfolio over the next 90 days and as many as 15 more properties over the next two years. “Now is the time for us to leverage our existing buying power in the best interest of our members,” says Jarvis Slade, president of A&K Residence Club. “We view the current market dynamics as positive for our real estate acquisition efforts because we can be more aggressive and selective in the types of homes we bring into our club.”
Destination club executives are stepping up communication with members during this time. Addoms says Quintess executives have spoken with most members directly and are organizing member events in major markets. Quintess will continue to provide members with a quarterly update on the value of the club’s real estate portfolio, and plans to cover real estate and the economy in other member communications.
Learn more about how to evaluate a destination club membership in our guide.
Reader Feedback
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From: Not Any MoreThursday, October, 09, 2008 at 05:05 PM
Ben Addoms says . . . “Terms have actually improved slightly as interest rates are tied to LIBOR, which has dropped this year.” LIBOR has gone through the roof in the last 30 days. May want to get an update on this quote.
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From: Clarence ScottThursday, October, 09, 2008 at 10:13 PM
If you are looking for private commercial financing, we may be able to help. We are private commerical lenders who help real estate developers in need of commercial financing. We have private short term loans starting at $2 million dollars and up. If we can help with your financing, please let us know.
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From: No need for creditFriday, October, 10, 2008 at 06:23 PM
Certainly in light of the events of recent weeks, a no debt club like Abercrombie and Kent makes a whole lot of sense.
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From: Craig BosioSaturday, October, 11, 2008 at 11:05 AM
Its Great to see that the Destination Clubs are feeling confident. Most Destination Club members and Private Residence Club owners are pretty savvy investors. If the Destination Clubs are optimistic we should all feel good. Caribbean properties in the Cayman Islands, Turks and Caicos, Dominican Republic and Mexico all seem too contuinue to do well. I wonder how its impacting the European destinations. Great info again, Thanks
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From: J.J. CollinsWednesday, October, 22, 2008 at 10:49 AM
Now that we're several weeks into this mess, it would be interesting to hear how sales are progressing.
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From: RealistWednesday, October, 22, 2008 at 11:56 AM
It is folly to believe that these clubs can or will avoid a beating in much the same way as all other real estate/resort investments. The local Governments will have to raise property taxes to supplement their budgets, and these luxury developments are easy targets. As well, financing costs will get much higher. I anticipate a number of members will redeem their memberships, which will exert both pricing and carrying costs pressures on others. I would certainly not be a buyer at these prices.
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From: RonWednesday, October, 22, 2008 at 02:49 PM
It's always nice to hear that even in the difficult time that we are in fiscally certain industries are still selling and have activity in the "Real Estate" market.
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From: RichThursday, October, 23, 2008 at 10:21 AM
This can not end well. Destination Clubs purchased tons of overpriced real estate with cheap debt. Coupled with declining demand and a lack of transparency into the financial strength will make new purchasers a bit queasy.
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From: DCerMonday, October, 27, 2008 at 05:06 AM
There will likely be another shakeout if things don't turn around soon. Clubs that don't use financing (A&K) or use financing and are presumably strong otherwise (ER) should do fine, and should be in a position to run away with the market when thing return to normal.
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From: JohnThursday, October, 09, 2008 at 04:40 PM
Wow, nice post, I definitely agree, these are hard times and will take some time before the real estate market gets back to its fit. I sure hope so! thanks for the informative post! Best, John <a href="http://www.ocpropertylink.com">Orange County Real Estate</a>