We spent some more time interviewing the co-founder of ultra-luxury club Parallel, Chad Morse, as well as head of marketing, Mark Cain. First of all, here’s a quick snapshot of the club:

• $625,000 deposit, 100% refundable.
• Non-equity membership, with a “3 in, 1 out” membership retirement rule.
• Annual dues of $37,500 with property values in the $4M + range (with a member to home ratio of 6 to 1)

In terms of real estate, they have four homes owned or under contract:

• A 6,000 sq. ft. home in Paradise Valley, Scottsdale
• A new 4500 sq. ft. home at the west end of Aspen
• Cabo San Lucas
• 4 bedrooms with guest house home beachfront on Kaui in Hawaii (there are less than 150 beachfront homes on that island)
• A townhome in London (they currently lease a spectacular 2 bedroom unit at the Soho Hotel)

They also have options on four additional homes (one of which is St. Barts ). Presumably they are waiting for the next group of members to join nefore closing those homes and putting them into operation.

According to Cain, the real estate acquisition strategy is based on trying to buy “the best home in the best location” – meaning they will need all of the $4M+ they have budgeted to buy homes, especially in locations like Hawaii where prices have cimbed steadily over the past three years.

Parallel’s initial progress looks good so far. The club recently reached its target of 25 charter members, who came in at a membership deposit level of $495,000 and also receive some participation in the increase in the value of the club. However, there is a long way to go to reach their 600 member target.

CEO Morse and his team seem to understand many of the issues that other clubs have struggled with – such as Tanner and Haley – and have structured their club to address some of those issues:

• At $37,500, annual dues are set at a level that can actually cover club operating costs – rather than pricing articificially low to enticed new members.
• Fully transparent books, audited by a Big 4 firm, allow members to see key business metrics, such as level of debt and refund obligations relative to asset values. They expect to be able to show that they can refund all membership deposits at any time.
• The club founders/managers take their 10% development fee at the end of the sales process, when all 600 members are signed on – better aligning the interests of the managers with those of the members.

Helium Report Perspective

At this stage, we think Parallel is one of the strongest new entrants this year, but their progress over the next 6-12 months will determine if we are right. Check back next week for Part 2, where we will talk more about the founding partners, their philosophy for managing the club, and what we think needs to happen for them to get from 25 founding members to 100 active new members.

Image courtesy http://www.parallel.com.