Connecting The Dots In Luxury Business Deals
“How you do in business is directly aligned with how well you get along with people” has always been my motto.
I currently live in La Jolla, yet my official “home” is The Hamptons, back East. I “office” at a lovely outdoor café, where I often meet up to 50 people per week over coffee that either I do business with or to explore how we can do business together. Yes, I am a “deal junkie,” and always have been. I happen to now be in a very exciting and likely extremely lucrative niche involved with multi-million dollar vacation homes.
Last Friday’s meeting at my coffee hang out was with one of the principals of a small and exquisite fractional ownership company. We were introduced to each other by a mutual friend who suggested that in light of our similar business clientele (wealthy investors and luxury travelers) we might find much common ground. He was exceedingly correct.
My partner, here in town to conclude a huge deal for us, just arrived from back east, where we are headquartered. Since he is intimately familiar with the business model of our coffee guest (he actually invented that industry 16 years ago!) all three of us were at our introductory meeting. While the two industry experts conversed, I listened, absorbed what I needed to, and came up with a very cool (and lucrative) way in which we could work together.
His company’s business model was to sell fractional interests for hundreds of thousands of dollars to wealthy investors. These investors would both vacation for free whenever they wanted to (in the partnership’s spectacular villas) reaping the gain from appreciation on the properties when they were sold a decade later, as well as earn cash flow from the rental income earned on marketing empty time in those villas. The challenge was, like every other luxury rental outfit out there, that the occupancy levels just never are very impressive. In fact, we just finished a small marketing push for a California locale of some of our units yielding a very significant 31 rentals at top dollar…while this company’s own occupancy for their properties in the same area, chalked up a dismal 10% occupancy during the exact same time period. Needless to say, they could use our help in marketing.
The seriously larger “play” between us happens to be available through my latest venture involving cost segregation studies for vacation villas. I instinctively knew that our guest’s company and investors could benefit in a big way with my recent innovation.
While our new friend had been actively involved in investing in luxury real estate, he had never heard of cost segregation and wondered if his company and partners were eligible for such a benefit. He guessed not…I knew he was dead wrong but stayed quiet as I speed-texted my cost segregation engineer with what I was thinking and what I wanted him to do for me. The fractional villa company owner left us very happy that we might well increase his cash flow with additional rentals and even bring in new investors into his limited partnership. I, of course, suspected that we would bring a whole lot more to this “party.”
As the old saying goes “Luck is when preparedness meets opportunity” and if this wasn’t such a case, I don’t know what is. By the next morning, I received a complete breakdown of how the fractional villas company’s assets (villas) could receive cost segregation benefits, increasing cash flow by a whopping $2 million! All of the research, IRS backup and actual numbers (what my engineer could dig up in only a few hours)…produced that amazing estimate of $2 million in benefits, going through the cost segregation process. That report was literally in the hands of our new friend, 24 hours from the time we were sipping coffee together the day before.
Now, what does “connecting these dots” mean here? At first blush, the obvious biggest winner is the fractional villa company with a $2 million payday that they had zero idea they had coming to them. The engineer, of course, wins from producing tens of thousands of dollars in new fees. But how does our little villa company benefit…well, we win most of all here. By agreement with my engineering company, I get preferential rates for any business that I bring to them. That means I pay markedly less fees for delivered reports than any client would. Since our unique business model for our villa company is to acquire blocks of time by “exchanging” luxury goods and services at deep discounts from the luxury goods providers for “rack rates” of dead space in multi-million dollar vacation villas and then marketing same at deep discounts to our many luxury travelers…we earn our profits from the arbitrage.
We can offer to provide the same deal to the fractional ownership company. We will pay the thousands of dollars for the cost of the engineering studies that yield $2 million in tax benefits for a significant block of empty villa time that we re-market for cash to our “membership.” After paying for the studies, we net what’s left…which will certainly be a larger margin than if we “paid” for the empty time with wine, silverware or fancy linens to the villa company owner. We estimate that our margins will double or even triple our traditional model, using cost segregation studies as “payment.”
Today’s innovation and connect-the-dots project involves “cost segs” for vineyard properties, where we exchange fine wines for our villa owners’ wine cellars that we trade for “dead time” and then monetize…while the vineyard owners reap hundreds of thousands of dollars in unknown tax benefits…which we pay for by picking up the tab for the study.
Serial luxury travel entrepreneur, Peter Burns III, specialises in the establishment and operation of niche market multi-location businesses.
In the past 40 years of business formation and ownership, Peter has started, run, sold, and/or expanded over 100 individual businesses in dozens of fields. He is currently focusing on luxury holiday rentals at Asset Exchange Collection.