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Grow your portfolio while seeing the world: Equity Estates

We helped a unique business reach new heights.
 

Imagine a collection of high-end, luxury vacation residences – in a variety of beautiful locations, both near and far from home.

Imagine you and your loved ones enjoying these properties for personal travel, where you’ll find them stocked with your favorite groceries, set at your ideal temperature, and kept completely spotless.

Now imagine making lasting memories at these wonderful homes for a number of years, then collecting a share of the appreciation value when they sell. Sounds amazing, right?

Well, Equity Estates has made that vision a reality.

In 2004, Philip Mekelburg had a friend pitch him the idea of joining a “destination club.” For an initiation fee and monthly dues, he could vacation to a group of homes all around the world. Philip was interested, but he had an important question: Who owns the properties?

As it became clear that the homes remained in possession of the company owner –the financials weren’t available for club members to see – Philip thought there must be a better way. And that’s when he developed Equity Estates.

“With Equity Estates, we looked to create a financially transparent alternative to the destination club model, whereby we release comprehensively audited financial information and set objectives aligned better between those putting the money up and those responsible for acquiring and managing the portfolio. We coined the term, ‘Luxury Residence Fund’ – the idea being that everybody shares use and enjoyment at cost, having incredible travel experiences, and ultimately getting their investment back, plus appreciation.”

It was an interesting idea that found immediate traction amongst friends and family. But there were challenges, however, when it came to getting Equity Estates off the ground to a larger audience.

The unconventional nature of the company – which involves hospitality, real estate, securities laws, and tax – meant that Philip and his team had to tackle complex problems right from the start. For instance, they had to identify the exact structure of the business and the best method to go to market – which they eventually determined was a private placement (aka Private Offering).

They also had to find an initial group of investors for their first fund. Philip explained, “Certain regulations meant we weren’t allowed to advertise for the first eight years of our business. We could only talk about the offering with those we knew or got to know before presenting the details of the offering.  We had to build our business the hard way, one relationship at a time, through word of mouth.  Now we get the benefit from a lot of referrals from happy traveling investors, and we get to advertise like any business.”

And for a portfolio of $2 to $5 million homes, with the first fund raising and deploying over $60 million in capital, it was clear they needed a bank to help with financing. Interest rates from private lenders were too high to be workable in the long term even though Equity Estates Funds have 30% maximum debt to value covenants. Since banks traditionally act with caution around high-end residential real estate, Equity Estates needed a bank who would take the time to understand their business.

That’s where Atlantic Capital stepped in.

“We worked with a much larger bank before finding Atlantic Capital,” Philip explains. “Our size and unique business model didn’t fit within the lines of lending departments at most banks. Atlantic Capital was our first experience with a bank who took the time to understand what we do, their willingness to listen says a lot.”

While most banks make lending decisions based on whether a business fits neatly into the standardized requirement “boxes” they have established, Atlantic Capital works to grasp the underlying story. Sometimes existing templates aren’t capable of providing the complete picture of a company’s financial model, and in the case of Equity Estates, Atlantic Capital’s ability to get creative made all the difference.

“There are typically a lot of conditions that need to be met in order for a bank to feel comfortable loaning someone money,” Philip says. “We understood that, but whereas other banks took a ‘black and white’ approach, Atlantic Capital actually articulated their concerns to us, and then gave us a chance to address those concerns. We talked openly about worst-case scenarios and then wrote them into the loan agreement, so everybody got what was needed to be comfortable.”

Since overcoming the early challenges, Equity Estates has continued to grow. From a team of two employees and a small handful of investors, they now have 21 employees and over 450 investors who are regularly enjoying life-changing vacations at more than 50 homes across the world. After selling out the first three funds, Fund IV is now open, with more on the way. Despite initial setbacks of the COVID-19 pandemic, the company recently enjoyed its best ever quarter in Q3 2020, demonstrating, “we have the right opportunity lined up for people who see value in the safety and comfort of private vacation homes compared to crowded resort style hotels.”, shared, Philip.

“I take a lot of pride in the way the bank has handled the relationship,” says Allen Phinney, SVP, Relationship Manager at Atlantic Capital. “We’ve worked through a lot of different scenarios; we’ve had a lot of conversations, and at the end of the day, we’ve been able to help Equity Estates in the way we said we would. I’m grateful to work for a bank that cares as much about making clients happy as I do.”

Atlantic Capital has helped a wealth of small- and medium-sized businesses like Equity Estates achieve lasting growth – both locally and nationwide. For more information on how Atlantic Capital can fuel your prosperity, give us a call today at (404) 995-6050.

For more information about Equity Estates, visit www.EquityEstatesFund.com.

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