M Private Residences' Paul Poscente and Ken MacLean Destination Club Interview

The Veras Group recently sat down with Ken MacLean and Paul Poscente of M Private Residences to discuss the latest changes at the club and their take on the destination club industry, as part of our ongoing series speaking with many of the destination club CEOs.

The Veras Group: Ken, Paul. We’ll start with our hardest hitting question of the day. What does the M stand for?

Paul Poscente: (laughs) It’s whatever you want it to be!

The Veras Group: Ken and Paul, why are you stepping aside from M Private Residences and could you tell us more about your roles with the club moving forward?

Paul: The shareholders in M are fortunate to move forward with basically the same crew, except for Ken and I, that has been operating the company since its inception. It really isn’t a loss for shareholders in terms of management. There were obviously things I was working on as CEO, and Ken in sales and marketing, that we will continue to work on, of course. We are a quasi-public club and we believed this was a necessary change to the club, and also an evolution of the industry.

The Veras Group: How did Shareholders react to the changes being made at M Private Residences and your departure? Did you advise them beforehand?

Paul: Because we are a de facto public company, there were securities regulations to go through and circulars to be drafted, so yes. This was a long time coming. Although we obviously built the club for profit, it’s now a not-for-profit model. It’s a perfect place for M to be.

Ken MacLean: Really, shareholders were happy to get rid of us and lower their cost structure! Obviously, though, the board saw value in keeping us around.

The Veras Group: Gentlemen, can you discuss the new redemption policy that M Private Residences has put into place?

Ken: It is a true open market environment. What better way to set the value than someone who wants to buy it?

Paul: We are selling equity. You need a bid and you need an offer. Arbitrarily setting a price not connected to the market doesn’t make sense. Also, in an environment where all you are doing is selling shares, in a low growth environment like we face globally, you want the highest level of liquidity offered to shareholders.

Also, we wanted to make sure we structured a situation where members who were exiting the club, didn’t run the club. We wanted the people who want to stay in the club, to run the club. So I think we have struck a chord of equity between both groups. And, we could always revert back to the traditional 2 in 1 out sale process.

The Veras Group: Is there any advantage for a US-based member to join M Private Residences?
Ken: We have a few US members, and I guess, one example might be, to take advantage of different travel patterns. The classic example of Thanksgiving, that’s not a holiday here. You could have your pick of places to travel to.

Second, would be the US dollar in this particular economy. These points are obviously outside of whether a US member sees the model itself as a differentiating pattern.

Paul: The other item, because we have to act as a public company, is the level of transparency. Particularly now, given what’s gone on with the economy, with asset backed securities and toxic assets, the fact that the shareholders bout the management company, has provided a circumstance where there is no profit motive. It’s a sheer not-for-profit. We are the only club in which 90% of the capital coming in from share sales goes directly to assets. I don’t have to clip a 25% piece of that capital for commissions.

The Veras Group: With High Country Club forced to restructure their business model and Lusso Collection filing for Chapter 11, club's operating models have come into question. Do dues from M Private Residence shareholders cover your operating expenses?

Paul: My favorite subject! Before we decided it was in M shareholders’ interest to buy the management company, we courted and dated most of the major clubs outside of Exclusive Resorts, and talked about merging, acquiring, and selling. Through that process and without getting into any specifics, we got to see under the sheets of all these companies, and were aghast at the extent that operating costs failed to cover the cost of expenses, generally speaking. There were only a couple ways out, and that was for the management companies to continue to raise equity and cash or refinance the real estate in order to fund that delta. Let’s be very clear, at M, every dollar is covered by the operating costs. Every light switch, every cup of coffee, all the debt, all the salaries, all the sales, sales incentives, referral programs, every freaking dollar is in the annual dues.

Ken: Just by general nature Canadians are conservative, everyone knows that.

We could subsidize annual dues, but this is a not for profit club. It’s like a golf course. They have expenses, they divide that amount by their members, and that’s each member’s costs. What allows us to do this is to be a very lean business. We only have $5.9 million of debt on our entire portfolio.

We do monthly, hourly, P&Ls. We dedicated one guy to focus solely on the best practices and operations of our homes. We’re looking at everything from telemetry and remote operating of our facilities, to the proper temperature to heat the pools.

We have four years operating history, so we’ve got all of this worked out.

The Veras Group: Why join M Private Residences now rather than 6 to 12 months?

Paul: The obvious thing is if you believe this is the bottom or near the bottom of the real estate market, given our secondary market opportunities, this is probably the best time.

Ken: There is infinite supply in the industry, and so what’s the urgency to buy? This is the reverse, price is going down. We’ve been able to cut our cost, our capital cost, and there are some decent deals to be had on the secondary market.

Paul: We used to take a 28% commission, and there is no longer a need to increase our prices by 28% above the net asset value. So if you believe the membership is a good value, it would make sense to buy now.

The Veras Group: As shareholders, are there any properties you have been to that you think prospects and shareholders should know about or any properties coming online in the near future?

Ken: I’m a mountain guy. I love the Whistler property. Whistler is great because it’s a 12 season property. I’ve skied, I’ve mountain biked. You look right into the mountains, but are 2 minutes away from whatever you do. It’s good for family and it’s good for a guy’s weekend, a place you can go to again and again and again.

Paul: Our home in the big island in Hawaii. It represents the reason anyone would buy a destination club membership. Access to the Fairmont hotel. A walk to Starbucks. Bicycle ride to club house. Two world class golf courses. It is the best in our portfolio.

Ken: Outside of Whistler.

The Veras Group Opinion

We believe the changes undertaken by M Private Residences are intelligent ways to deal with the current market slowdown, and also represent an excellent opportunity for Canadian or US-based members. As each club seeks ways to make their model scalable for the new growth patterns emerging, we believe more options may turn to secondary markets for memberships, and applaud M’s change. By allowing exiting members to sell their memberships, the club provides a win-win for members that stay and for those that exit.

Clearly, with any major staffing change, there are potential hiccups, and we will continue to check with M Private Residences to follow-up on this transition period. So far, though, the changes appear to be widely appreciated by members and based on sound financial planning—just what the destination club industry will need for the years to come.

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Original Article
M Private Residences' Paul Poscente and Ken MacLean Discuss Destination Clubs With The Veras Group