We spoke with the managing director of The Hideaways Club, Mark Smith, recently and sought his opinion on the destination club industry and its future. Here are his thoughts, and our analysis. For more information, please see the Luxury Reporter profile of The Hideaways Club.

LR: Hello Mark. For whom is The Hideaways Club a natural choice, do you think, and why? Feel free to describe a ‘typical’ scenario, if you like.

MS: The typical member of The Hideaways Club is someone who wants to invest in property and take their holidays in this property without having any of the responsibility to maintain the property and its surroundings. The member may all ready have a holiday home but now wants to be more adventurous in where they visit.

LR: Can you explain for us the differences in your plan levels, and the reasons people choose each of them? Can you tell us which is the most popular?

MS: We have two investments with usage rights.

The first investment is sold as the A share and costs as a one off payment £200,000 and then has an annual fee of £12,000 per year for 100 points which can be exchanged for time at any of the properties and at any time during the year. We have a points calendar and depending when the member takes their holiday these points offer between 4 and 6 weeks property use of any Villa or ski chalet. Members can purchase more points if they wish.

The second investment is a C share which costs a one off payment of £133,000 and an annual fee of £8400 and gives 70 points. Points cannot be used during peak periods and this share is directed at those people who do not have school age children and prefer to take their holidays during the quieter months. We have only just introduced the C share.

LR: What do you think are the most important questions a prospective member should ask of a destination club? Any questions that people tend to forget?

MS: The most important questions would be:
How do I know my money is safe with this destination club?
How do you allocate time at the properties so it is fair to all members?
When and how can I sell my share should I choose to do so?
How do you value your property porfolio and who does this for you?
Can you show me some member testimonials or can I speak to a current member?
What is the annual fee, and are the any other costs?
What other services do I receive for my investment and annual fee?

LR: How do you respond to the very common (and important) question ‘What guarantee do I have that I will always be able to receive a refund of my membership deposit?’

MS: Our promise is that you will be able to sell your share after a minimum of three years’ investment and [the price will be] the market rate at that time. So it is dependent on the market conditions but because we have spread our portfolio in several markets the investment has historically only gone up.

The operational company [see below, under ‘Our Analysis’, for details] receives 20% of any [share price] appreciation. So if a share is purchased at £200,000 and 3 years later it is sold by the member for £280,000 the operational company will receive 20% of £80,000 with the remaining 80% going to the member. If the member sells the share on the is no sales fee, but if [we are] asked to sell then we levy a 5% commission.

[Mark has clarified that there is no procedure in place to ‘cash out’ a member after a set period of time if no sale is made. In non-equity destination club terms, this model is comparable to a one in, one out policy with a greater-than 80% membership deposit refund.]

LR: Equity-based destination clubs seem to be gaining popularity. Do you think the trend will continue, and what do you see as the strengths and weaknesses of the model?

MS: The Hideaways Club is an equity club.The member has all the advantages of a luxury holiday home portfolio with an underlying property investment – so the best of both worlds and certainly in our opinion much better that just a destination club where the member has no equity in the property.

LR: Service is a huge part of what destination clubs offer their members, but it’s not always clear to prospective members just what they might be able to expect. Can you give us any examples of times when your staff have been able to go the extra mile, or help out in unusual situations?

MS: The Hideaways Club has a central concierge service where all bookings are taken and services supplied.This is backed up by each property having a local concierge who can, if required, book local services and assist with the members’ holiday.We would organise local sailing trips and wine tastings, bring a chef in, or book all ski school, ski hire and lift passes. A member might wish to have a local guide or have a massage or yoga. All of this is possible with the concierge service.

An example of going that little bit further with service would be the supply of a hamper of the area’s specialities.

LR: What’s on the horizon for the company, and the industry as a whole?

MS: The horizon for The Hideaways Club includes new properties in Oman, Cape Town and Mauritius, and city apartments for weekend trips to the most exciting cities. […] the industry as a whole needs to keep spreading the word as we feel it will grow as investors see fractional ownership representing the clever way to manage expensive assets.

OUR ANALYSIS

The Hideaways Club uses slightly different parlance from the North American clubs, but essentially it’s an equity-based destination club. There’s a greater focus in the company’s marketing material on the investment aspect, with membership being positioned as an easy way to invest. To quote their website:

‘You take advantage of our expertise in selecting and refurbishing in unfamilar markets, and spread your risk across both established and faster-growing regions. In fact, property investment has never looked so good - or been so enjoyable.’

Here is some more detail on the financial structure of the investment, again from the corporate website:

…the portfolio is selected and managed according to the same high standards used by professional fund managers, and compliance with all the appropriate financial services rules and regulations. What your membership actually buys is a share in a Gibraltar-registered property company, which in turn owns all of the individual residences.

Another Gibraltar-registered company manages the properties on your behalf as a member, for which it receives 20% of any rise in the value of the whole portfolio. The remaining 80% belongs to the members. You can track the value of the portfolio by following the changes in the share price of the property company. This will be reset periodically by the company to reflect any changes in the value of the portfolio as a whole, as well as the level of demand for membership. For example, if the share price grows by 10% per annum for 10 years, the return on your investment would be 159% excluding charges and any costs of borrowing. The table below gives a fully worked example, this is of course for illustrative purposes only.

Annual costs assumed to increase an average of 7% p.a.

We’d like to highlight, as the club has done, that the table above is given as an example only. Of course, the growth figures used in the table - 7% and 10% - cannot be guaranteed.

Mark explained to us that the club cannot cannot sell shares to residents of the United States as a result of strict regulations set out by the Financial Services Commission of Gibraltar. He says the club’s membership is roughly 60% UK citizens, 15% Scandinavian and other Northern Europeans, and 25% Swiss, German or Austrian.

Mark on the club’s revenue streams and financial transparency:

From the share money, the operating company uses 14% of the total to market the business to new members. All transactions and company operations are open to inspection by the members and the year-end club figures are subject to strict financial audits.

As we’ve explained above, the process for selling a share in The Hideaways Club means that exiting this club is roughly equivalent to exiting a non-equity destination club with an 80% refund and a one in, one out policy. The upside is that the value of the share may have increased, while the downsides are that members may not leave for three years, and there is no guarantee of a sale. Please see our article on leaving a destination club for more discussion of this point.

The points system used by The Hideaways Club is not entirely straightforward, but presumably the points calendar makes things clear.

OTHER ARTICLES THAT MAY BE OF INTEREST

• The Hideaways Club
• Fractional car ownership
• Destination clubs - an overview
• Private Escapes and Ultimate Resort merger
• Ventures Equity Vacation Club