Destination Club

Destination Clubs were "invented" in 1998, when Rob McGrath, a veteran of the luxury timeshare development business, launched Private Retreats. Since then over 20 companies have launched clubs (and more are being launched every month) targeting affluent families that want the benefits of second home ownership, but with more flexibility and choice. Experts estimate that there are less than 10,000 people currently participating.http://www.latimes.com/business/investing/la-tr-money27-2008jul27,0,6214608.story]

Defined

These clubs tend to have the same basic structure: in exchange for a one-time upfront membership fee, and annual membership dues, a member gets access to a roster of luxury vacation homes around the world, which can be booked based on availability and reservation priorities. Here's a typical rundown:
* Access to 3-5 bedroom homes (smaller condos in city locations), either on resort properties or near key locations (ski resort, beach etc).
* Homes are owned and managed by the club or leased by the club, and are for the exclusive use of club members
* 14 - 42 days of home usage at different homes across multiple locations.
* The ability to book homes in advance and on a “space available” basis, as well as a system to handle the demand for holiday or peak periods.
* High service levels including: pre-departure planning, on-location concierge services and daily home cleaning service.
* Furnishings, appliances and audio-visual equipment that would be considered “luxury class,” such as Viking stoves and flat-panel TVs.
* Additional membership privileges and benefits, including special club events.

Compared with Alternatives

Destination clubs are often compared to other “fractional” real estate programs like timeshares or private residence clubs. The destination club model gives the consumer more choice and less overhead, typically without deeded ownership of the underlying real estate. There are some exceptions. Below is a summary of how the destination club model compares:

Luxury Hotel - Though appealing for a couple’s getaway, lux hotels are less optimized for kids and multi-family groups. These hotels often provide exquisite service and plush amenities, but have inflexible room configurations, limited privacy and pricey services.

Luxury Rentals - With this alternative, vacationers simply rent a house. Though you may choose the house you want, where you want it, the research and cost can be significant. In Cabo San Lucas, 5-star resort Las Ventanas charges $4,000 a night for a three-bedroom residence suite. A single five-night vacation would exceed the annual dues for most destination clubs ($20,000 at Las Ventanas vs. $18,000 average annual dues).

Private Residence Clubs - These clubs combine the services of a luxury hotel chain with the partial ownership of a second home. The residences are typically smaller than destination club residences: convert|750|sqft|m2|0|abbr=on city apartments to convert|3000|sqft|m2|-2|abbr=on resort villas.

Second Home Ownership - This option provides the benefit of full asset appreciation with a home that is uniquely suited to and customized for your family. The downside is lack of destination flexibility, and the cumbersome reality of owning a home. Taxes, maintenance, utilities, neighbors can become a disproportionate burden for a four-week-per-year residence. Destination club membership can be less expensive than home ownership, even factoring in ownership appreciation.

Destination clubs are especially well-suited for families or groups who are looking for larger residences – three or more bedrooms and at least convert|2000|sqft|m2|-2|abbr=on, and can manage their travel schedule within the availability structure of a club.

Membership Model

While there are several variations, the basic choice is between equity and non-equity clubs. This is similar to the membership model choices at country clubs.

In both models, club members provide a large up-front sum and an annual fee. In non-equity clubs, they enjoy the hospitality benefits of the club, but don’t own an interest in the homes and do not participate in any of the real estate appreciation of the portfolio of homes. The up-front payment is a deposit, and when they resign from the club, members receive 80% (sometimes up to 100%) of that deposit back, typically with no adjustment from the initial sum. There are some exceptions as noted below with the "hybrid" model.

With equity clubs, the up-front payment can be considered an investment of sorts (or at least a reduction in the opportunity cost of making the up-front payment). When exiting the club, the refund of that fee is adjusted to reflect the value of the home portfolio or the increases in the fee for new members. Various clubs have different ways of providing this benefit. Also, with an equity club, the members own the club's real estate portfolio, which provides additional security of the membership deposits. The Abercrombie and Kent Residence Club, formed by a combination of two leading equity clubs, Crescendo and Bellehavens, is the current leader with this benefit.

A somewhat popular variation is the “hybrid” model, which combines a non-equity club with an upside benefit that is tied to the value of a club membership.

Although the equity model has obvious appeal, a prospective member should consider numerous factors in making the decision to join a destination club. Members are making both a financial and a vacation lifestyle decision, and should consider each aspect in turn.

History

Private Retreats launched the industry in 1998, with one club, Private Retreats, under the company name "Preferred Retreats". The company was later renamed "Tanner and Haley", with over 900 members in 2006. Exclusive Resorts entered the business in 2003 and with the backing of AOL founder Steve Case, became the industry leader in terms of members, locations and homes. By the end of 2006, the club claimed over 2,500 members with 300 homes in 30 locations. Following the success of Exclusive Resorts, from 2003 to 2004 entrepreneurs launched competitive clubs such as Quintess, Dream Catcher, Private Escapes, and Ultimate Resort. Specialty clubs joined the mix as well, for instance The Markers Club for golf. In 2005, a Fortune 200 company, Cendant Corp. entered the market in partnership with Leading Hotels of the World and Destination Club Partners, a pioneer in fractional resort development. Together, they launched Leading Residences of the World.

In 2006 the industry grew substantiallyFact|date=August 2008, but also suffered a high profile failure. "Tanner & Haley Resorts", still a significant player at the time, entered Chapter 11 bankruptcy proceedings. As a group, members lost more than $200 million in the bankruptcy. However, the real estate and members of Tanner and Haley were acquired by another destination club, Ultimate Resort. Ultimately, this led to the creation of several entities focused on consumer protection. The Destination Club Association was created to help govern the industry by the leading clubs and supported financial transparency by clubs and an increase in truth in advertising. Halogen Guides and SherpaReport serve as media outlets focusing on destination club coverage. DestinationClubForums.com provides a forum for detailed member postings on their experiences with various destination clubs. And the Veras Group serves as an independent, third party advisory firm focused on guiding prospective destination club members to the club that fits them best.

Criticism

The Destination Club (DC) industry has an Achilles Heel - the refundable portion of the membership fee of many destination clubs has no assurances that it will be returned. If the club is deluged with members wanting to exit there may be no new members wanting to join. The members are captured and can't exit the club with the industry standard of 3 in 1 out rule. However, many destination clubs would liquidate after a certain period of time if not enough new members have joined to offset those resigning. Additionally, the DC may find itself in financial trouble and not be able to repay the membership fee as it has guaranteed. Equity destination clubs are designed to reduce this risk significantly by providing members with ownership and priority over other creditors.

There are no destination club specific real estate laws to protect DC members, although agreements are covered by all other aspects of law including contract law. In contrast, timeshares are more strictly regulated.

ee also

*Timeshare
*Fractional Ownership

References