PRIVATE RESIDENCE CLUBS/HIGH-END FRACTIONALS

Delivering Institutional Quality Capabilities Through an Entrepreneurial Mindset Burland East, CFA 858.362.3565 beast@silverportalcapital.com Jon Haahr 858.362.3560 jhaahr@silverportalcapital.com Faris Mansour 858.362.3561 fmansour@silverportalcapital.com investment opportunities in real estate Eric Wurtzebach 858.362.3562 ewurtzebach@silverportalcapital.com PRIVATE RESIDENCE CLUBS/HIGH-END FRACTIONALS Financing and Development Opportunities Written in cooperation with: David M. Disick & Associates 2811 Gallivan Loop Park City, UT 84060 Tel: 435.659.9738 ddisick@msn.com April 25, 2005 Silver Portal Capital, LLC 888 Prospect Street Suite 220 La Jolla, CA 92037 Tel: 858.362.3550 Fax: 858.456.8671 Real Estate Investment Banking www.silverportalcapital.com Member of NASD and SIPC 1 KEY POINTS The Investment Opportunity · The Private Residence Club/High-End Fractional (collectively “PRC”) market segment offers institutional real estate investors a compelling, risk-adjusted investment niche in an emerging and rapidly growing sector characterized by significant un-met demand. · Expected internal rates of return (levered with a construction loan at 65-80%) are typically 20–35%, pre-tax. Benefits for Members · PRCs enable members to experience second homeownership without the high cost of traditional homeownership through fractionalization of resorts. · The basic PRC positioning statement is that members have “the same realistic use they would make of a comparable quality whole ownership condominium at a fraction of the cost, plus club-level services and amenities.” · A dramatically growing segment of potential second homeowners desires a second (or third) home, but is either not prepared to spend the time and trouble associated with the ownership or is not interested in tying up a large portion of assets in a single property that will be used only part time. For these buyers, the market segment logic is compelling. The Target Market · The sector’s target market is an affluent demographic that is relatively price insensitive and more resistant to economic cyclicality. · In fact, the member benefit of “the same realistic use” is especially compelling in downturns to the affluent market, which will still vacation in such periods. Alternative to Whole Ownership · PRCs are at the highest end of the vacation ownership market, blending shared ownership with the exclusivity and privilege, sense of community and superior service that members of a fine city or country club enjoy. They are actually an extension of the country club industry. If one regards resorts as giant country clubs with rooms, this point is evident. · Individuals buy fee simple interest in specific condominium residences and have certain guaranteed weeks and periods of use and other flexible weeks by reservation. Member NASD/SIPC 2 · PRC developments compete with wholly owned second homes, not timeshares. They are sold as a real estate investment as well as a vacation experience. The buyer is generally someone who would otherwise buy a whole ownership interest, but is attracted to the fractional because it lets him match use to cost. Nature of Developers • Historically, PRC developments have been financed and built by individual entrepreneurs. • Recently, PRC development has captured the attention of larger developers and institutional investors. National hospitality companies are rapidly entering the market. With them come increased resources, recognition for the PRC segment, and credibility, as well as reduced risk to the investor. Unrelated Business Income Tax (“UBIT”) • The development and sale of PRC units may trigger UBIT for tax-exempt investors. UBIT-sensitive investors might invest through a “C” corporation to cleanse income or in a mezzanine debt structure to avoid UBIT altogether. Debt Financing • Due to the PRC industry’s nascent nature, construction lenders are relatively conservative. They typically require a minimum of 25-50% in pre-sales before allowing a developer to draw down the line. Member NASD/SIPC 3 THE INDUSTRY PRCs are resort condominiums sold to multiple buyers, each of whom owns a fractional fee simple interest in the residence allowing the buyer/owner specified use rights. For example, a resort condominium that is sold in 1/10th intervals allots each owner a 5-week period of usage. Fractional home ownership, in some form, has existed for decades with approximately one-quarter of vacation home sales sold on a fractional basis. In the mid-1990s, a refined second home product called the PRC was developed to cater to more affluent customers seeking the quality, services and amenities of a four- or five-star resort, coupled with the sense of community similar to a fine city or country club and the feeling of a second home. This coupling has resulted in a resort product that offers customers an unprecedented level of luxury, sophistication and exclusivity at attainable price points. INDUSTRY EVOLUTION AND GROWTH The PRC sector is still in its early stages, but it is evolving rapidly and is the subject of significant interest from consumers and institutional investors alike. Because of the level of luxury and prestige of the PRCs, buyers of the fractions are more sensitive to the perceived time allotment and flexibility of the usage than they are to price. In the consumers’ mind, they are already paying significantly less than a wholly owned second home; their concern is that the resort is available to them when they want. The PRC industry began with the development of the Deer Valley Club in Park City, Utah and the Franz Klammer Lodge in Telluride, Colorado. The PRC industry has grown up around ski resorts where second home ownership is high and repeat visits are typical. The industry has since branched out to include other resort locations, such as beach settings, golf resorts and urban areas. Fractional resorts are categorized as follows 1: ! Ski—47% ! Beach—30% !Golf—18% ! Urban—2% !Multiple locations—3% 1. Source: Ragatz Associates Member NASD/SIPC 4 Existing Private Residence Clubs 4 9 3 2 2 10 5 3 1 3 7 27 4 1 4 1 1 3 9 2 5 6 2 1 1 3 4 Not Shown on Map: 3 Hawaii - 2 Canada - 8 Caribbean - 4 Mexico - 4 There are currently sixty-six resorts built or in development with many more planned PRC resorts 2. The industry has grown rapidly with worldwide sales totaling over $406 million in 2004, more than triple sales in 1999 of $161 million. Also in 2004, there were $32 million in resales and $437 million in pre-sales. Assuming a conservative penetration rate of only 5% annually, the remaining effective market demand over the next ten years would be over 100,000 purchases with a sales volume estimated at over $20 billion. This figure is based on the following assumptions: !Assumption—Income-eligibility for the high-end fractional/PRCs range between $250,000 and $500,000. There are about 2.1 million households and 451,000 households, respectively, with such incomes in the United States. !It is estimated that only about 20,000 households own one of these products. 2. Source: Ragatz Associates Member NASD/SIPC 5 ... - tailieumienphi.vn