Equity Estates recently launched its sixth luxury vacation residence fund.
Philip Mekelburg is the founder and CEO, a graduate of Cornell University and before Equity Estates he held various roles in management consulting, finance and business development. His vision helped create Equity Estates, back in 2006, when it was among the first to develop the equity destination club/ equity funds idea, marrying high-end private investors with a diversified portfolio of luxury vacation real estate, they can own and enjoy. SherpaReport caught up with Philip to discuss this growth and expansion and the launch of the latest residence fund.
Instead of renting or “buying vacation time”, members are fund investors and own a share in a portfolio of high end vacation residences. The members’ ownership rights in any fund allow them to stay at properties in Equity Estates’ other fund residences, thanks to the reciprocity agreements between the multiple funds.
The fund concept offers major benefits: access to luxury vacation homes plus the advantages of investing in a property portfolio that may see long-term appreciation of the properties. At the time of liquidation, usually in ten to twelve years, the net proceeds are redistributed to the investors first, until 100% of their original investments have been returned, and then 80% of the net proceeds thereafter. This is after years of vacations at shared costs that look more like a cooperative, compared to retail rental rates. Many Equity Estates’ investors consider the annual savings as part of their return. The company promotes that they underutilize their homes to make room for investor travel. They target only 60% occupancy and Philip agreed that his Cornell hospitality professors would frown over that, but he says it is what makes things work in his humble opinion.
Fund I is currently being liquidated and proceeds returned to investors. Funds II through V, have been sold out and each have a their own lifespan, detailed in their offering documents, defining when they will liquidate and sell off their homes. They are closed to new investors. Fund VI has just been opened in June of 2022, with expectations of selling out next year. To date over $250 million has been raised across all the funds in total and deployed into luxury real estate.
SherpaReport recently discussed the launch of fund VI with Philip Mekelburg, and what it means to Equity Estates and the industry in general.
SherpaReport: Before we get to the opening of Fund VI, let us discuss Equity Estates Fund V - it sold out very quickly, how short was it and to what do you attribute that rapid success?
Philip: You are right - Fund V sold out in less than a year, seven months to be exact, about 35% of the Fund V investors were happy Fund I investors interested in traveling like they were used to. So, they reinvested into Fund V. That helped create some nice momentum. The other reasons we had such success are really fascinating concepts, though probably not perfectly provable. First, I think more and more investors saw high-end vacation homes as a smart and safe place to invest - a hard asset and storage place to park capital to preserve wealth as inflationary pressures became evident. In addition, we sensed what we call, the pandemic hangover – pent up desire to travel, many making up for lost time, and a perceived safety of being in a home verse a crowded hotel resort. Finally, work from home has taken on new meaning during and post pandemic. Many more people are working while on vacation by joining their family for dinner and other activities while delivering what’s needed over video conferences. They had not done it to this level before, it was a new world.
SherpaReport: How many homes have you bought in Fund V and when do you expect to have bought them all?
Fund V sold out in May 2022. It raised $50 million and has acquired or is actively negotiating on its first six of twelve vacation residences. Destinations are chosen to appeal to savvy investors looking for outstanding vacation experiences with long-term appreciation. Fund V’s complete liquidation plan will commence beginning in 2032.
SherpaReport: Will fund VI differ at all from the earlier funds and if so, how?
Philip: Fund VI launched in June 2022 and plans to raise $60 million to acquire up to twelve vacation residences. A typical residence is in a sought-after beach, mountain, leisure, or city destination convenient to area amenities, attractions, and airports. Residences will cost between $3.7 million to $5 million. Fund VI’s liquidation plan is expected to commence beginning in 2033.
But by year end, all investment levels will see an increase in capital contributions. The various levels allow for investment to be commensurate with how much travel an investor anticipates.
SherpaReport: What are the key home locations you are looking at for Fund VI, and which ones are you happiest about?
Philip: I am happiest that we find home and destination superiority our members have asked for: from urban to international to beach to mountain.
SherpaReport: The Equity Estates process is to sell the Fund I homes after the end of the ten-year term - you are doing that now - would you provide an update on how that is going?
Philip: It is going well. The majority of the homes have been reported to have sold for 150% of their original purchase price. We expect the fund to be liquidated fully next year, and admittedly it may require a price reduction or two to get the final homes sold.
SherpaReport: You're now on your 6th fund, how has Equity Estates evolved over the years - has anything changed?
Philip: Much has changed - since 2012, there was an ownership change and tenured team members have helped expand our travel service offerings. We have also come to know our investors on an extremely personalized level. Based on demand, we have created Equity Estates Expeditions, that take investors to unique places in the world, when they can see the world on their own time. These are once in a lifetime type travel experience including tasting tours through Tuscany, cruises to Galapagos Islands, safaris and more. We are planning an Iceland experience right now. We also offer private yachts and market one called KOKO, that travels the Caribbean. We are growing and there is always more to see, more to do.