destination clubs research

The following page provides helpful research and analysis clarifying salient characteristics of Destination Clubs.

DEFINITION: A relative newcomer, this model provides consumers access to a portfolio of luxury homes in multiple locations. Generally, it is characterized by the absence of any equity or ownership of the underlying real estate (though there are some exceptions).

KEY CHARACTERISTICS

Larger Homes
In terms of surface area, Destination Club residences can range anywhere from 1,000 – 5000 sq ft depending on the caliber of the club and the location of the asset. For most leading Destination Clubs, the homes average 3000-3500 sq ft.

Membership Deposits
According to data compiled by leading research firms, Destination Clubs costs commonly include a one-time fee that can range from $20,000 to $1.5 million. However, the average membership deposit for upper bracket Destination Clubs is $300,000-$400,000.The deposit is typically between 80 and 100 percent refundable should buyers choose to exit the program.

Annual dues
As for the annual dues, they commonly range from $25,000 to $35,000 for upper bracket Destination Clubs. Some Clubs may also charge a nightly fee while guests are in residence.

Refundability factor
Destination Clubs generally sell memberships on a “non-equity” basis. Members generally receive 80-100% of membership deposit back when they leave the Club. Most Clubs follow an “in & out” method of refunding deposits. To cite an example, for each 3 new members brought ‘in’ to the Club, the Club will refund 1 member (i.e. the ‘out’). This model of refundability is vulnerable if a Club becomes unattractive due to business or member satisfaction reasons.

Leading Destination Clubs
Chaired by America Online co-founder Steve Case, the largest Destination Club is Exclusive Resorts. Exclusive Resorts dominates this segment with nearly 2,500 members and more than 300 properties, and a 65 percent share of the Destination Club market. The membership levels and fees to join Exclusive Resorts vary and run as high as $425,000, and annual dues range from approximately $15,000 - $35,000.

Other leading names include Yellowstone Club World, Crescendo, Quintess, The Lusso Collection, and Solstice.

Apart from the names mentioned above, industry analysts point out that there are now more than 20 Destination Clubs managing 600 homes with an average value of $3 million each across North America.

Destination Club Concept – Is there a risk element?
Since you don’t own an interest in a specific home, but are a member of the Club, your membership deposit and vacation use privileges are only sound as long as the Club is successful. It is this ‘business continuity’ risk that clients need to carefully consider when opting for the Destination Club model and when choosing a specific Destination Club to join.

Case Study: “TANER & HALEY”
Great Start
Tanner & Haley, set up in 1998 under the name Abercrombie & Kent Private Retreats, was considered one of the pioneers of the Destination Club concept. Members made redeemable initial deposits (from $100,000 to $1.5 million), and paid relatively modest annual dues (starting at $7,000) plus a $150 per night rate. The Club had an excellent portfolio of homes in numerous desirable locations.

Files for bankruptcy
Tanner & Haley filed for Chapter 11 Bankruptcy Protection in July 2006. The company acknowledged that its costs were far outpacing revenues that eventually resulted in a 2005 net operating loss of nearly $64 million! The news was a shock not only to Tanner & Haley’s 874 members, who were in danger of losing their huge deposits, but also concerned the thousands of people, who had joined other Destination Clubs.
Just as timeshares have largely overcome their earlier reputation issues, many Clubs have also done so by implementing business practices to protect member deposits.

The following report card gives a snapshot of the key ‘Travel’ and ‘Investment’ considerations that can be associated with the Destination Club segment.

KEY: = Best = Good =Fair = Poor = Worst

DESTINATION CLUB REPORT CARD^SM TRAVEL DECISION DRIVERS

TRAVEL CONSIDERATIONS	KEY DRIVERS	COMMENTS	RATING
FREEDOM AND FLEXIBILITY	Variety of Destinations Size of the Asset (home) Timing & Length of Use Spontaneity of Travel	Excellent benefits in terms of access to high quality residences in multiple locations. This may be the strongest benefit of the clubs. Some Clubs’ members have experienced challenges with reservation policies and access to homes during peak periods.
“OUR PLACE”	Control Privacy (e.g., personal effects) Small Number of Other Owners Selection/Screening of Other Owners	Members tend to feel a bond with the club but because members travel to many locations, they may not have a bond with the home(s).
“WOW FACTOR”	Asset (home) Quality Amenities & Activities Design Proximity to Natural Attractions (e.g., view)	Destination Club homes are generally located in desirable locations, have excellent design & furnishings and are very luxurious.
“NO WORRIES”	No Management Headaches Service (pre trip + onsite) Reporting Single Point-of-Contact	Club membership is pretty worry-free; the only headache can be gaining access during peak times

 

INVESTMENT DECISION DRIVERS

INVESTMENT CONSIDERATIONS	KEY DRIVERS	COMMENTS	RATING
APPRECIATION & PRESERVATION POTENTIAL	Buy it Right (Make most of your money when you buy) Market Factors (Supply & Demand) Sponsor Fees	Most Clubs offer to return 80% of the deposit upon departure. Some offer 100%. There are few proven equity club models.
PRIDE OF OWNERSHIP	Brand and/or Beauty of Home/Destination Charitable Donation of Excess Time Bragging Rights Small Number of Other Owners	Members are generally proud to be part of the Destination Club as it indicates a level of achievement.
COST OF OWNERSHIP	Initial Investment Rental Income (less expense and debt service) Carrying Costs My Time required to Manage It	In addition to $300,000-$400,000+ membership deposit, Clubs’ annual dues are $25,000-$35,000 per year (for e.g. 30 nights’ usage). There is no rental income to offset those costs
LIQUIDITY	Sell Minority Interest Sell Entire Asset Retain Ownership if Others Want to Sell Estate Issues (Heirs want to sell)	With a well-run and respected Club, the odds of selling your membership in a reasonable time frame are good. If a Club loses its way, and member satisfaction is low, then getting out will be very difficult.