The dream vacation location can be yours, for a price – and one Sherwood Park company is selling it
by Max Fawcett
There are professional perks, and then there are the ones that come with Stephen Petasky’s job. The 32-year-old president of the Luxus Group routinely gets to visit some of the most desirable locations on the planet – think Tuscany, Costa Rica and Hawaii, not to mention the Canadian Rockies – in order to buy up multimillion-dollar recreational real estate properties on behalf of his family’s Sherwood Park business. Jealous yet?
Don’t be, Petasky says. After all, he hasn’t been paid in three years.
That’s by design, mind you. Petasky knew that the Luxus Group’s concept – a limited partnership model in which shareholders get access to (and an equity stake in) a portfolio of high-end recreational real estate properties in exchange for a one-time fee and annual dues would only work if it scaled up quickly. “When you’re making 15 per cent on $50,000 in operating costs, it’s nothing,” he says. “But when it’s on several million, all of a sudden that math makes sense.”
There’s also a common chicken-and-egg dilemma that many recreational real estate investors face, in which an initial decision to start small condemns them to stay that way forever. “You can’t launch with one or two properties, because people won’t trust that you’ll get to the 20 or 30 that you’re committing to,” Petasky says. The Luxus Group avoided that trap by attracting 18 founding partners who invested a combined $3.5 million and gave the business the momentum – and the credibility – it needed to move forward.
Still, Petasky knew he was in for some lean days until the economies of scale that were needed to turn a profit kicked in. “The infrastructure you have to build to support the experience is so expensive – way more than what I thought. We built this on a five-year break-even, and we’re going to be a five-year break-even, and that’s with me and the principals of the company taking nothing.”
It’s no secret where Petasky’s instincts come from. His parents, Don and Nancy Petasky, who also happen to be principals in the company (and whose offices are right next door to Stephen’s), have been investing successfully in recreational real estate for years. But they saw an opportunity to do something more ambitious and blend their passion for travel with their skills as investors, so when the recreational real estate market started to wobble in 2007 and 2008, they decided it was time to make their move. “We wanted to believe there would be other people like us who would support this style of travel and ownership,” Stephen Petasky says, “people that were looking for a higher quality of experience than they can get in the rental market.”
They were right. Investors scooped up partnerships in the “Premiere Collection,” the first group of properties that included pied-à-terres in Maui, Scottsdale, New York and Orlando with an average value of $1.1 million. Investors paid between $140,000 and $235,000 (along with annual dues between $5,700 and $9,700), depending on the size of the family and the amount of access they wanted. Now, the company is in the process of selling partnerships to its “Elite Collection,” a higher-end set of properties that have an average market value of $2.5 million and are located in even more exotic parts of the world. Those who invest in this group will also have access to similarly luxurious properties in Europe, Asia and the Caribbean, thanks to a partnership agreement Luxus is hammering out with the two other big players in the field, Atlanta’s Equity Estates and the U.K.’s Hideaways Club. “We’re going to have access to roughly 100 properties around the world when it’s all said and done,” Petasky says. The price tag on a partnership in this group ranges from $165,000 to $550,000, with annual dues of $7,000 to $22,000.
It’s easy to understand why people are interested in Luxus’s product. When you average it out backwards, it costs around $500 a night for those in the Elite Collection. While that might sound steep, Petasky says those properties wouldn’t rent for anything less than $1,000 in their low seasons and could fetch as much as $5,000 a night during peak periods. Equally important, Petasky says, is the standard to which every property is held. “It’s like a fully stocked, brand-new second home. When you get there, you can settle right into a holiday. You don’t have to wonder if the DVD’s going to work or restock the fridge and go looking for a bottle opener.”
The tedious work of booking flights, arranging tours and securing a rental vehicle – even booking a tee time – is all taken care of by Luxus’s concierge service. There’s more: Luxus recently cut a deal with Hertz that will give partners in the Elite Collection access to Hertz’s exclusive Platinum Program, and it reached an agreement with Calgary’s Airsprint that will give Luxus partners the opportunity to use its fleet of private jets.
But the biggest draw of all, Petasky says, is the exit hatch the company built into its partnership agreement. That sets it apart from other equity-based travel clubs, where those looking to exit must put their names on a redemption list and wait for new capital to come in and replace theirs. In a good market, that’s usually not a problem, but in a bad one, it can create a vicious cycle that can constrain growth and even sink an operation outright as incoming capital goes towards replacing the equity of people who want out rather than new sales. “As soon as you get anyone on your resignation list,” Petasky says, “it’s a very difficult spiral to get out of.”
Luxus hasn’t had that problem, and it has the province’s oil and gas industry to thank for that. “We took several oil and gas private equity agreements and reviewed them and looked at what they did,” Petasky says. “They had a totally different profit model – there’s a capital raise period, a buy of the real estate and then, once it’s capped, you have a certain life that you’re going to enjoy the assets of those properties. Ideally, you’ve bought low, and the company is worth more by a fixed date, at which point everything gets sold and everyone gets their pro-rated share of the investment.”
That decision to create a fixed exit point 10 years down the road has helped the company survive the downturn in recreational real estate prices that was occurring right as the company launched its first group. “We’re no different,” Petasky says. “Sales slowed down, but because every person bought in with the thought of staying until 2018, not one single person during the recession asked to sell their equity.” As a result, the company was able to generate new sales in 2009 and 2010 and continue to grow its portfolio of properties. “In hindsight,” Petasky says, “it was by far the best thing we ever did.”
Now, the company is gearing up for its next phase of growth and, Petasky hopes, some operating profits as well. In late 2011 he sold his stake (along with the rest of his family) in the two Sherwood Park Sobey’s locations in which he, his parents and his sister all had one-fourth shares to focus full-time on Luxus. The first five properties in the Elite Collection, including an absolutely stunning place in Costa Rica that shares a beach with the nearby Four Seasons, have been locked up, and Petasky hopes to have as many as eight secured by the fall as new investors come on-board. The company is also exploring the possibility of setting up an investment fund that would buy up distressed real estate, maximize the rental revenues from them, distribute the cash flow on a regular basis and then close down the fund at a fixed date and distribute the proceeds to investors.
But while the company has big plans for the future – including a portfolio of properties dedicated specifically to investors in Eastern Canada and an overall target of 50 total properties by the end of 2013 and 100 by 2018 – one thing it isn’t going to do is leverage up its existing assets. The Luxus Group has zero long-term debt and only uses its line of credit to handle one or two short-term acquisitions at a time. That’s not going to change, either, despite the fact that sellers come calling almost daily with prospective properties and their bank – any bank, really – would happily extend the company millions of dollars in credit based on existing assets. “Every deal looks sweet,” he says, “but that financial discipline has paid off. We’re not going to risk that.”