In a destination club, 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.
Destination clubs were "invented" in 1998, when Rob McGrath, a veteran of the luxury timeshare A timeshare is a form of ownership or right to the use of a property, or the term used to describe such properties. These properties are typically resort condominium units, in which multiple parties hold rights to use the property, and each sharer is allotted a period of time in which they may use the property. Units may be on a part-ownership or development business, launched Private Retreats. Since then over 30 companies have launched clubs targeting affluent families that want the benefits of second home ownership, but with more flexibility and choice. During the global economic downturn in 2008-2009 many of these clubs have foundered and several have filed for bankruptcy.
Experts estimate that there are fewer than 10,000 people currently participating, since the initial investment Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in form of interest, income, or appreciation of the value of the instrument. It is related to saving or deferring consumption. Investment is involved in many areas of the economy, such as business management and is usually more than $100,000 plus thousands in annual dues.[1]
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What is included
Here is 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
- 10–60 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.
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 75% to 100% of that deposit back. 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 Opportunity cost is the cost related to the next-best choice available to someone who has picked between several mutually exclusive choices. It is a key concept in economics. It has been described as expressing "the basic relationship between scarcity and choice." The notion of opportunity cost plays a crucial part in ensuring that 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.
Another 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[2]. 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 2008, the club claimed over 3,500 members with 300 homes in 30 locations. Following the success of Exclusive Resorts, from 2003 to 2006 entrepreneurs launched competitive clubs such as Quintess, Hideaways, Private Escapes, and Ultimate Resort. Specialty clubs joined the mix as well, for instance The Markers Club for golf. In 2009, a Fortune 200 company, Marriott_International Marriott International, Inc. is a worldwide operator and franchisor of a broad portfolio of hotels and related lodging facilities. Founded by J. Willard Marriott, the company is now led by son J.W. (Bill) Marriott, Jr. Today, Marriott International has about 3,150 lodging properties located in the United States and 67 other countries and Inc. entered the market when they launched the Ritz-Carlton Destination Club.
Despite strong membership sales in the summer of 2006, the industry suffered a high profile failure and faced significant consumer scrutiny.[3] Tanner & Haley Resorts, still a significant player at the time, entered Chapter 11 Chapter 11 is a chapter of the United States Bankruptcy Code, which permits reorganization under the bankruptcy laws of the United States. Chapter 11 bankruptcy is available to every business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most prominently used by corporate entities. In contrast, bankruptcy proceedings.[1] As a group, members lost more than $200 million in the bankruptcy.[1] 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 third party advisory firm.
Although the original idea of the destination club remains an attractive concept, companies in this industry will need to adapt in order to survive and grow. Destination clubs will need to prove their business models to prospective customers who have been burnt by the bankruptcies of clubs that have recently failed.[4] [5] It is also important to consider how the recent recession has affected customer attitudes related to luxury products and vacation experiences.[6]
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 Real estate is a legal term that encompasses land along with improvements to the land, such as buildings, fences, wells and other site improvements that are fixed in location—immovable. Real estate law is the body of regulations and legal codes which pertain to such matters under a particular jurisdiction and include things such as commercial to protect DC members, although agreements are covered by all other aspects of law including contract law In law, a contract is an agreement between two or more parties which, if it contains the elements of a valid legal agreement, is enforceable by law or by binding arbitration. That is to say, a contract is an exchange of promises with specific legal remedies for breach. These can include Compensatory remedy, whereby the defaulting party is required.
See also
- Timeshare A timeshare is a form of ownership or right to the use of a property, or the term used to describe such properties. These properties are typically resort condominium units, in which multiple parties hold rights to use the property, and each sharer is allotted a period of time in which they may use the property. Units may be on a part-ownership or
- Fractional ownership
- Destination Club discussion Forum
References
- ^ a b c Jane Engle Before joining a destination club, ask questions. More elite travelers are joining such associations. Whether they are a safe investment is up for debate. Los Angeles Times The Los Angeles Times is a daily newspaper published in Los Angeles, California, since 1881. In 2008 it was the second-largest metropolitan newspaper in circulation in the United States and the fourth most widely distributed newspaper in the country July 27, 2008
- ^ Sharon Vigoroso Revised Destination Club Guide, SherpaReport, March 13, 2009.
- ^ State of the Destination Club Industry Report, Business Wire, December 12, 2006.
- ^ Susan Kime The Dark Side of the Dream: Thoughts about the Past and Future of the Destination Club Industry, FraxFinder, January 26, 2009.
- ^ Lucy Warwick-Ching A Shared Destiny, Financial Times, December 5, 2009.
- ^ Susan Kime Deconstructing and Reconstructing Luxury: Refining Meanings in a Post-Madoff World, FraxFinder, May 27, 2009.
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