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The New Destination Clubs
Danielle Reed April 23, 2007PAGES: 1 2
See our slideshow of the new destination clubs.
But there are some vacationers who are most likely not cut out for destination club membership. Anyone who likes to travel at the last minute, for example, is probably better off with some other kind of vacation home option, said Shove. “You have to plan ahead to a certain degree. And of course you have to want to go to the locations where (the clubs) have homes.” In more exotic locales, such as Asia, he said, destination clubs don’t have the coverage just yet.
Also, an individual or couple traveling alone — without children, grandchildren, or friends — may not be able to justify the expense of a destination club. In that situation, said Shove, “if you want to travel for two to three weeks a year, you’re kind of paying for extra rooms you don’t need.”
And until recently, destination club membership was also not a good choice for anyone who wanted to be able to participate in the appreciation of the clubs’ real estate. Most clubs are still non-equity, meaning members get to use the properties but not participate in any increase in the value of a club’s real estate. However, BelleHavens, founded in 2004, is structured so that members can participate in real estate appreciation, as is a club called Crescendo, founded in 2005.
See our slideshow of the new destination clubs.
Clubs of all price ranges are careful to stress they are “lifestyle investments” rather than real estate investments — even those structured so members can benefit from appreciation of the real estate.
Even so, with such a large amount of money tied up in mostly refundable deposits, prospective members are right to be concerned about the safety of their funds. The destination club business is a fairly new industry that’s unregulated as of yet. And already there’s been one major bankruptcy. The first destination club, Private Retreats, later known as Tanner & Haley, filed in 2006.
The now-defunct club had promised 100% refunds of membership deposits, unlike most clubs, which limit refunds to 80%. And it guaranteed reservations whenever members requested, even during peak holiday season, meaning the club ended up having to lease a lot of properties to accommodate demand. This business model proved unsustainable.
Other clubs are eager to point out how their operations are different from those that led to Tanner & Haley’s demise. Industry leader Exclusive Resorts has been at the forefront of establishing formal industry-wide best practices, including limits on the proportion of properties a club leases (rather than owns), and requiring clubs to be able to demonstrate they have enough cash and assets on hand to fully back up member deposit refund requests.
These have always been Exclusive Resort’s business practices, says CEO Donn Davis, before and after the Tanner & Haley bankruptcy. Still, he feels it would benefit the industry to have some regulation, and says he is hopeful legislation to that effect will be introduced in a number of state legislatures in 2007. “There need to be standards put in place so consumers can understand if a club is operating responsibly or not,” said Davis.
In the meantime, consumers who are considering joining a destination club should ask to see documentation demonstrating that a club can refund deposits, as well as evidence that sales and marketing costs are not covered by the refundable portion of those deposits. Questions like whether there’s a waiting list to exit a club or what the ratio of members to properties is should be readily answered by management. If a club won’t share such basic information, it’s probably best to walk away.
See our slideshow of the new destination clubs.
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