Q: What are the Equity Residence Funds?
The Equity Platinum Fund and Equity Villa Fund are two distinct funds created to allow like-minded people to benefit from the current real estate market. The Funds are modeled after — but we believe superior to — other similar funds that are successfully exploiting the current market. Fund investors will be partners in a limited partnership that will acquire distressed properties. As partners of the Fund and hence equity interest holders, investors are indirect owners of the properties that the Fund invests in with a long-term interest in the properties’ appreciation. In addition to financial returns through expected real estate appreciation, Fund Partners will enjoy either “rent-free” vacations in luxurious resort properties or the right to rent their guaranteed property usage for a Capital Dividend.
Q: How much property usage do I get for my Equity Villa Fund investment?
A full Unit of investment provides each Partner with two Priority Visits (up to 7 nights each) per year. Every incremental Half Unit of investment provides an extra one Priority Visit and one Bonus Priority Visit. Another important and valuable benefit is that all Partners have unlimited access to Fund properties on a space-available basis, subject to Fund reservation procedures.
Q: How do the Equity Residence Funds differ from timeshares, fractional ownership or destination clubs?
Timeshares are typically a points-based or right-to-use, one-week product that are, in essence, a pre-purchase of future vacations. They depreciate dramatically upon purchase due to the extremely high marketing and sales costs imbedded in the price. Even at drastically reduced prices, resale options are very limited. For many timeshare buyers the main motivation to purchase is for exchange privileges to other timeshare properties.
Fractional ownership, including private residence clubs, does not provide a coordinated liquidation event, so after project sellout all owners are responsible for their real estate sale and are competing with other fractional owners in the resale market. Buyers have ownership in only one residence at one location and values are tied to that specific market. Many private residence clubs prohibit rentals that could help defray carrying costs.
Most destination clubs are not equity investments. They sell a right-to-use membership requiring a significant deposit that is usually backed by the company’s promise to return a stated percentage of the deposit (often 75%). The deposit may or may not be secured by real estate assets. The only resale option is through the destination club company, which is highly motivated to sell its memberships, not the members’. The annual membership fees of most destination clubs are considerable and do not provide a significant savings over rental of luxury homes.
The Equity Residence Funds will own and operate real estate investments with a high probability of appreciation during the 10-year “hold” period. Like other real estate, it is possible to sell your Fund Units through a Transfer, potentially at an appreciated price. Since we are a partnership, there is no ‘middleman’ structuring the transaction and requiring its own separate return on investment. Because, the Fund will own properties in multiple locations, your investment will be diversified while providing an enviable variety of vacation options.
It is very important to note that almost all timeshare, fractional ownership and destination club residences currently in the market were either built or purchased during the real estate boom. Therefore, their price points typically reflect yesterday’s values. Partners in the Equity Residence Funds should benefit from real estate acquired at bottom-of-the-market prices.
Q: What are my annual out of pocket expenses for the Equity Villa Fund?
Because of our ability to generate income from the Properties from rentals to third parties, the only out-of-pocket expenses for Partners with respect to their use of the Properties will be a per Visit Fee of $350 for 3 nights or less and $450 for 4 nights or more and, if required, a nominal annual Operating Fee to cover operating expenses of the Properties. We are currently forecasting rental income to be sufficient to cover all annual operating expenses, so annual operating fee is necessary.
Q: Can I invest self-directed IRA assets into an Equity Residences Fund?
Your long-term retirement funds can be put to work with an investment in distressed vacation properties. And the Equity Residences team of industry experts provides a turn-key, managed way for you to take advantage of the current opportunity. Talk to your tax adviser and then call us to learn how your self-directed IRA funds can be utilized in the Equity Residences Funds.
Q: Will I be able to reserve the weeks I want?
Equity Residences has established the Funds with a low owner-to-property ratio (7:1) to ensure the properties are available when you want them. Your first choice in locations may not always be available but a different location during the requested week or the desired property in a different week should be.
Q: How does the reservation system work?
Our reservation system ensures equitable use of the residences by all Partners. Reservation confirmations are based on the number of Units owned and rotating priorities. See the Policies & Procedures document for more details.
Q: Will the properties be rented?
The Property Manager will rent the properties to third parties to offset the annual operating expenses of the Properties and the Fund. Partners are not permitted to rent properties to third parties individually; however, a Partner can return Priority Visits to the Fund to be rented to generate income for the Partner and a subsequent Capital Dividend.
Q: How long is the term of the fund and can I sell my interest early?
The term of the Fund will be 10 years, after which all properties are sold and proceeds distributed to Partners in accordance with the limited partnership agreement. However, the limited partnership operating agreement provides the General Partner flexibility to sell properties when it deems it is in the best interest of the Fund and its Partners to maximize investment returns. Partners may sell their positions if a buyer is appropriately identified per the Funds’ requirements.
Q: What is my capital contribution used for?
Capital contributions will be used to: (i) acquire properties, (ii) pay closing costs and other acquisition expenses, (iii) furnish and decorate properties and make them ready for Partner use, (iv) pay for costs associated with organizing the Fund and conducting this offering of Partnership interests, including legal, accounting, printing, travel, sales and marketing costs, and (v) establish an on-going reserve to cover scheduled maintenance and appliance and furniture replacement for Fund properties.
Q: What personal exposure do I have outside the limited partnership?
None. The general partner will carry ample insurance for any claims or acts of God and you will have the additional protection of the limited partnership legal structure.
Q: Will the Fund borrow money to acquire the vacation residences?
The Fund may borrow up to 25% of the Fund’s Net Asset Value to accelerate property acquisition or to pay for capital improvements.
Q: What if I cannot use my property visits in a given year?
Each Partner will enjoy the significant vacation value attributable to use of Fund properties each year. The property usage creates a significant equivalent annual dividend for each Partner. If a Partner has Priority Visits that are not going to be used in any calendar year, they can return them to the Fund to be rented for incremental rental income. The net rental income is subsequently applied as a re-invested dividend and treated as incremental Invested Capital for the Partner.
Q: How does the General Partner make money and is there a Preferred Return for Investors?
The Fund is set up similar to a traditional Private Equity Fund with a 2% Management Fee and 20% of Fund proceeds allocated to the General Partner. The General Partner does not earn any carry in the Fund until 100% of the Invested Capital is returned to Limited Partners. In addition, the Partners’ Priority Visits and Capital Dividends create a Preferred Return for investors as these annual usage rights or Capital Dividends are also returned to investors before the General Partner receives any Fund proceeds.