As you start to look into destination clubs & residence funds you may well come across a variety of terms that you're not familiar with. This glossary describes some of the most commonly used terms.
Advanced Reservation: a type of reservation that allows club members to book a residence in the club's portfolio between 2 months and 2 years prior to the vacation time. The number of advance reservations varies by club and membership plan and ranges from 1 to 4. Similarly the actual reservation window varies by club and membership plan, some clubs allow members to book up to 2 years in advance, others only 1 year. Advanced reservations allow members to schedule long-term getaways and ensure availability for their guests.
Annual Dues: the yearly cost to members, in addition to their one-time initial fee. Annual dues differ by club and by membership plan and range from $4,000 to almost $100,000.
Days/Nights Included: number of nights available in a club or fund membership plan. Some clubs refer to usage availability in terms of number of days and others in nights.
Investment Appreciation: increase in value of initial membership deposit. Equity clubs offer members a share of the increase in value of the underlying home portfolio. Members receive this increase when the homes are sold at the end of the life of the fund or when they leave the club. One of the most common features of residence funds is that members receive back their initial invesment and then get 80% of any profits on sale of the homes.
Equity Clubs (or Residence Funds): members own a share of the company that owns the club and/or its properties. These equity clubs afford members investment opportunities and allow members to profit from increases in the club's property values.
Holiday (Period) Reservation: a reservation made by a member for a highly popular peak vacation time of year. All destination clubs' holiday periods include Christmas/New Year and July 4th, but some clubs and funds have a broader definition of holiday than others, so it is important to inquire about a club's definition of holiday period before joining. The number of holiday reservations available to members varies depending on the membership plan, with the typical numbers between 0 and 2. The window for making such reservations is usually between 2 months and 2 years, depending on the club. Some clubs use a points based system so that reservations during holiday periods cost more points.
Home Value: average value of homes in a club or fund. Home values vary among clubs and range from $750,000 to $5+ million.
Independent Audit: an official examination of a club's financial statements by an outside audit firm. Independent audits assure members that the club's financial records are properly maintained.
Independent Valuation: appraisal of club or fund properties by an entity outside the club's ownership.
Initial Fee (or Membership Dues or Membership Deposit or Membership Fee): the initial one-time membership feeor investment that a member pays to join the club or fund. The amounts vary by club and membership plan and are generally between $1,000 and $1 million. In an equity club or residence fund, where the member is investing in the real estate, the member will receive money back when they leave the club - subject to the clubs policies and the change in value of the underlying real estate.
Interchange or Exchange: many clubs and funds have partnerships with other hospitality companies or with other funds in their own fund family. These provide a larger choice of travel opportunities. Members can exchange some of their club or fund nights for travel to these partner locations.
Membership Plan (or Membership Type): most clubs offer a variety of plans which provide different numbers of nights of use. The typical plans can vary from 7 nights to over 60 nights (or even unlimited nights subject only to the reservation rules). Plans with larger numbers of nights have higher initial fees and higher annual dues but in return also have larger numbers of Advanced Reservations and Holiday Reservations and may have a longer window for Space Available Reservations.
Member Cap: the limit placed on the number of members who can join the club or fund; equity funds have a cap like this. Member caps ensure a club-like atmosphere where employees truly get to know the members and their travel preferences, but they also deliberately limit the size of the fund and number of homes. In the case of equity funds this is done to provide a finite life for the fund, at the end of which the fund homes are sold and the proceeds returned to investors.
Member-to-home Ratio: total number of members divided by total number of a club's homes. This number usually ranges from 5:1 to 8:1. The member-to-home ratio offers a broad idea of availability. However, it is better to consider the occupancy ratio, particularly if clubs have several levels of membership plans, offering anywhere from 7 nights to over 60 nights.
Nightly Fee: the (additional) cost to members for a night's stay at a club home. Most clubs do not charge separately per night, and some clubs only charge a nightly fee once a member exceeds the number of nights allotted in his or her membership plan.
Non-Equity Club: the club members are not shareholders and do not have any ownership interest in the club or the club homes.
Occupancy Ratio: the percentage of a club's homes that are occupied at a given time. It is important to look at the overall occupancy ratio across a club's entire real estate portfolio, and to also look at individual locations by season. For example, ski locations in winter may well be close to 100% occupied but could be nearly empty in the Spring mud season.
Pay as You Stay Plans: In several newer clubs members only pay for homes as they reserve them. These clubs have low monthly or annual membership fees and relatively low or no initial fees.
Pre-Paid Plans: In most clubs, especially the equity clubs, members pay for a fixed number of nights each year. These clubs typically offer several different plan levels with different numbers of nights in each level. Members can usually buy additional nights if they use all their plan nights in a given year.
Resignation Ratio: commonly denoted as "2 in 1 out", or "3 in 1 out", this number signifies the number of new members who must join the club before a resigning member receives their refundable deposit. So "2 in 1 out" means that 2 new members must join the club before a resigning members deposit is paid. If a club is growing rapidly, members typically do not wait long to receive their refunds. If growth slows or stalls, and new members are not being added, then refund payments will also slow.
Space Available Reservation: a home reservation made at short notice within a specific time window before departure. The window varies by club and membership plan but is typically less than 90 days before departure date. Space available reservations usually offer a lower minimum stay than other types and are very useful for short notice, short duration trips.
Let us know if you have questions about any other destination club or residence fund terms you may come across. You can use the contact us page or email us at info at sherpareport.com.
