DC4MS

Wow...I am very excited. The New York Times plugged our web site and even interviewed a few of our members. The interview occurred in January and I have been waiting for this to be printed.

http://www.nytimes.com/2008/03/14/tr...in&oref=slogin

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The New York Times

March 14, 2008

A Second Act for Destination Clubs

By SUSAN STELLIN

ONE of the challenges for any club is achieving the optimal level of membership: selective enough to feel exclusive, yet large enough to be financially healthy.

That question of size is one of the main issues facing destination clubs as they look to recover from early growing pains and raise awareness about what is still a little-known luxury travel niche.

Destination clubs are designed to appeal to wealthy families who like to vacation in different places but who don’t want the responsibility of owning multiple properties. They charge a deposit — usually in the $50,000 to $1 million range — plus annual dues from $6,000 to $35,000 for access to a portfolio of homes in beach, mountain or urban locales.

The more expensive clubs offer larger, more luxurious homes and more days of use — 14 to 60 days a year is typical — which can be split among vacations in places like Cabo San Lucas, New York City, Tuscany or Vail, Colo.

Unlike owners of time shares, members of destination clubs generally do not have a stake in any real estate holdings, and clubs promise to refund at least 80 percent of the initial deposit when a member resigns.

But the clubs are not without risks; the 2006 bankruptcy of one of the early companies in the industry, Tanner & Haley, left more than 800 members as unsecured creditors, many of whom are pursuing lawsuits to recover their deposits. As a result, destination clubs have been trying to reassure current and prospective members about their financial stability, mostly through greater transparency and a fledgling effort at self-regulation.

They have also been shoring up their businesses through mergers, partnerships and membership plans that are more diverse, with some clubs betting that bigger is better, especially to appeal to a risk-averse second wave of members.

“As you go from the early adopters to the bulge of the market, we’re seeing that those people want to be part of leading clubs,” said Jim Tousignant, chief executive of Ultimate Resort, which became the second-largest destination club after acquiring Tanner & Haley’s assets and persuading some of its members to give the concept another try.

“We had 80 percent agree to convert from what was a club about to go out of business to our club,” Mr. Tousignant said, adding that in the recent annual renewal cycle, 99 percent of the members chose to stick around.

Ultimate Resort is now finalizing a merger with Private Escapes, the third-largest company in the industry. The combined club will be called Ultimate Escapes and have about 1,350 members, with 140 homes in 50 destinations.

That is smaller than the industry leader, Exclusive Resorts, which has more than 3,000 members and roughly 350 homes in 35 locations.

All three clubs offer multiple membership levels, with deposits ranging from $105,000 to $239,000 on the entry level (roughly 14 days of use) and $325,000 to $459,000 for the higher-end plans (about 45 days).

Once the Ultimate Escapes merger is completed, prices for all plans will rise by at least $20,000, said Richard Keith, chief executive of Private Escapes, but will still generally cost less than similar plans offered by Exclusive Resorts.

Tiered membership plans are becoming more common as clubs seek to attract more members. For instance, Exclusive Resorts now offers four membership levels, including a plan that gives 10 days of travel for a deposit of $129,000 and annual dues of $12,900.

“Some people look at it as an opportunity to try the experience,” said Jeff Potter, the company’s chief executive.

Another club that has participated in the recent wave of consolidation is Quintess, which merged with Dream Catcher Resorts in September 2006 and soon after joined with the Leading Hotels of the World to form Quintess, the Leading Residences of the World.

One of the industry’s smaller clubs, it has 435 members who have access to more than 70 homes in more than 30 destinations. Quintess offers four membership options, starting with a 20-day plan that requires a $240,000 deposit and $18,750 in annual dues.

Unlike most clubs, it promises to return 100 percent of the initial deposit if a member resigns within the first year (versus 80 percent after that, which is the industry standard).

This “boutique” model is also embraced by the Lusso Collection, which has 125 members who share unlimited access to 25 homes, with a limit of four reservations at a time. Lusso plans to cap its membership at 550, believing a smaller club offers more exclusivity.

“It gives us the ability to cherry-pick what we think are the best properties,” said Steve Greer, the company’s founder and chief executive. Larger clubs typically have to buy 10 to 30 properties in each destination to meet membership demand, which can result in better real estate deals but arguably fewer unique homes.

Lois Haynes, a Lusso member from Texas who previously belonged to Exclusive Resorts, said she and her husband made the switch primarily because they had a tough time booking reservations with the larger club.

“The availability was not quite what was promised,” Ms. Haynes said. Mr. Potter said the club had a 95 percent satisfaction rating among its members, and that as with any club or resort, peak travel times have greater demand.

Although quitting Exclusive Resorts meant losing 20 percent of their deposit, the Hayneses liked the boutique concept enough to join Lusso. Lusso has only one membership level, which costs $425,000, plus $28,000 in annual dues.

Although destination clubs are not currently regulated by the government, seven now belong to the Destination Club Association, a group formed in 2006 to spur some self-regulation.

Association members must adhere to the group’s Code of Responsible Business Conduct, which requires that each club give new members seven days to change their minds after joining and an opportunity to get a full refund. Clubs also pledge to get annual independent audits of their financial statements, which some clubs now share, at least in summary form, with their members.

Another requirement is that clubs agree to demonstrate annually that they have the resources to meet at least 66.66 percent of the total deposit amount due to members. This “net asset test” has become a fairly standard measure of financial stability in the industry, with most clubs aiming to maintain a 100 percent rating.

Consumers can research clubs on sites like DestinationClubForums.com, Helium Report and Sherpa.

Some clubs have taken other steps to reassure members about their solvency, like Ultimate Resort’s decision to place its real estate in a members’ trust, thereby making them secured creditors.

Another more boutique destination club, Crescendo, is structured as a private equity investment group, so its members do own a stake in the club’s properties. That’s a factor that reassured Mark Horn, a lawyer from North Carolina, when he decided to join.

“With other clubs, it just made me uncomfortable that you didn’t have an ownership stake,” he said, explaining that he hopes the appreciating value of the club’s real estate will someday make up for not having his $295,000 deposit invested elsewhere.

So far, he’s a fan of the concept, describing a vacation in Punta Mita, Mexico, enjoying breakfast from a home overlooking the ocean, and a trip to New York City where the concierge arranged drinks, appetizers and decorations for a family birthday party. “These trips have really elevated the way we travel — with not much difference in cost,” he said.

In fact, some people who follow the industry view the Tanner & Haley bankruptcy as an anomaly, saying overly generous policies required the club to lease properties to fulfill demand.

“This club never should have failed,” said Brian Kabateck, a lawyer with Kabateck Brown Kellner, a law firm representing 571 plaintiffs who are suing the travel company Abercrombie & Kent, which had licensed its name to Tanner & Haley, thereby confusing some members about who was operating the club.

Vern Vennes, one of those plaintiffs, said that when he joined the club, all of the paperwork cited Abercrombie & Kent’s name, and that the company’s solid reputation led him to join.

“As we started using the club, we noticed the properties weren’t owned” by the club, he said. “That’s when we realized something was horribly wrong.” He was among the group that took Ultimate Resort’s membership offer after the bankruptcy — and has been pleased with its operations.

“Ultimate Resort has been fabulous so far,” Mr. Vennes said. “The thing of course I learned is that you have to do more due diligence than I did the first time.”

A representative from Abercrombie & Kent said the company does not comment on pending litigation, but noted that its licensing agreement required that prospective members be informed that it was not involved in the operations or management of the club.

Although Hawaii has been considering legislation that would regulate destination clubs, a review released this year by the state auditor concluded that regulation was not necessary. The report determined that there had not been significant harm to consumers to justify new laws and called the industry’s efforts at self-regulation sufficient.

Analysts tend to agree that destination clubs have high satisfaction levels.

“The testimonials coming from members are generally extremely positive, so it’s creating consumer credibility,” said Scott Berman, head of the Hospitality and Leisure Advisory Services group at PricewaterhouseCoopers. “Their challenge is inventory and finding those special homes and exclusive enclaves that their members are demanding.”

While the current real estate climate might help clubs find homes at more favorable prices in some areas, he cautioned that in certain “jet set markets” prices are holding, so clubs may find increasing their holdings more difficult than attracting new members.

But both are key to keeping the club concept afloat.

“When you’re paying hundreds of thousands of dollars a member, it tends to be a finicky crowd,” Mr. Berman said. “A club is going to find its existence to be very short if it’s not satisfying this sort of consumer.”

vineyarder

Congratulations (& thanks for all your hard work)!

Kagehitokiri

wow! listed first, and the only one with a clickable link in the online copy of the article.

you should change title of this thread to "NYT plugs DC4MS" so it fits on the forum index page.

DC4MS

I was happy that they mentioned us and linked us (even better).

I try to create "search engine" friendly titles as any abbreviations are usually not found with a google search.

DC4MS

Small issue...they mentioned Helium Report (not their new name Halogen Guides) and mistakenly called SherpaReport simply Sherpa.

I guess that slipped past the NYT proof-readers.

Sherpa

This article covered destination clubs pretty well, and gave a fairly balanced view.

And great coverage for DestinationClubForums.com.

Despite the ending notes, my sense is that in several popular DC markets the real estate prices are now softening.

__________________
Sherpa
www.SherpaReport.com

Kagehitokiri

sherpa, at the $3MM+ level outside NYC?

LTTravel

Despite the crumbling real estate market, the question is, are DC's now a worse or better buy than ever? A look at the facts make this an interesting question.
1. If you had purchased a second home for $3million and the value decreased 10-20%, you would have lost $300,000- $600,000 just in the value of the asset, not including the cost of ownership. More than the entry fee into most upper scale DC's
2. Luxury vacation resorts have not significantly decreased in price (at least not yet) and the demand for them remains high. I was at the Ritz in Grand Cayman last Christmas and a garden view room was about $1000 per night. They were completely booked. Oceanfront apartments (3-4 bedrooms) were going for $5000-$15,000 per night.
3. People may not be willing to invest in vacation real estate but still want to vacation in a luxurious home. The DC model may be best without significant risk.

My personal opinion is that there will be a short term slow down in DC growth while the credit market stabilizes. It may be tough for some of the DC's. But after it stabilizes, people will be more likely to join a DC than invest in vacation real estate. The once almost guaranteed appreciation of real estate is gone (except in perhaps a few locations) and people will prefer the DC model. There is still potential for significant growth.

NeilGoBlue

Leverage, Leverage, Leverage..