September 29, 2008
Destination clubs offer access to multimillion-dollar homes in prime resort areas. But are these luxury clubs the right vacation home alternative for you?
Destination clubs offer access to a collection of luxury homes in some of the best vacation spots around the world, from beach retreats and ski chalets to urban pieds-à-terre. Over the past five years, these clubs—the newest vacation home alternative—have gained popularity, especially among families with children or multiple generations vacationing together. For these travelers, or any vacationer who wants the service of a five-star resort coupled with the comfort of more living space, destination clubs can be a better option than renting a villa (or finding a hotel with adjoining rooms).
Each destination club offers its own membership structure, price and array of residences. To join, members make a one-time membership deposit, ranging from $30,000 to more than $1 million. They then pay annual dues (median dues hover around $20,000), which cover property taxes and association fees in communities, and also go toward a capital reserve fund for property repairs. The majority of clubs don’t offer deeded real estate ownership. Instead, the deposit and dues buy a set number of vacation nights per year at the club’s homes.
Although clubs are continually building their property collections and adding new services, they remain niche players in the travel industry. There are currently fewer than two dozen individual clubs with around 6,000 members combined. Dominating the industry is Exclusive Resorts, with more than 3,000 members. Ultimate Escapes, Quintess LRW, High Country Club and Lusso Collection round out the top five.
Abercrombie & Kent, already well known for its luxury tours and safaris, launched a club this year and aims to quickly break into the top five. The club is building a collection of homes around the world, including properties in Africa, and offering members the ability to use plan nights on Abercrombie & Kent tours and safaris.
Given the mix of big names and smaller startups, joining a club could expose you to financial risk. In 2006, for example, destination club Tanner & Haley declared bankruptcy and failed to refund all its membership deposits. This implosion exemplifies why it’s critical for you to assess a club’s financial footing, weigh the costs and benefits, and conduct proper due diligence before signing on the dotted line.
Next: Locations & Perks
A beachfront home in Turks & Caicos. A 500-year-old Tuscan villa with vineyard views. A Manhattan condominium that sits high above Times Square. A mountain home in Telluride, Colo., just a short walk to the slopes. Sun and snow. Country and city. Destination clubs amass properties in some of the most desirable vacation spots in the world.
Clubs strive to offer residences in a variety of locations, both to satisfy existing club members and to help market plans to new members. Cabo San Lucas, on the tip of Baha Mexico, has the highest concentration of club-owned homes. Nearly all the big players have at least one residence in Cabo—industry leader Exclusive Resorts has 35 homes here. Other popular destinations include New York, Scottsdale, Hawaii’s Big Island and Utah’s Deer Valley ski resort. In Europe, destination clubs own homes in Paris and in Italy’s Tuscany region.
Clubs often tout their development pipeline to showcase their real estate breadth. But temper your excitement for that next home in Marbella or Maui. These homes can take years to build, so judge a destination club by its current collection of residences, not by what’s in the works.
Most destination club homes are multimillion-dollar, three- or four-bedroom residences, except in urban locations like New York, where club-owned properties typically have only two bedrooms. Homes are outfitted with high-end kitchens and furnishings, and often have a swimming pool, spa and extensive outdoor living areas. Some clubs, including the Lusso Collection and Solstice, even provide vehicles at most residences. Depending on the area, a home may be located in a gated community or on the property of a resort that gives members access to a spa, tennis courts and private beach.
Unlike most luxury villa rentals, clubs often provide members with a full suite of services, such as airport pick-ups or a local concierge who can book activities, arrange a spa treatment or stock the refrigerator before you arrive. Many clubs also offer discounted pricing on other travel services through partnerships with private jet providers, rental-car companies, luggage shippers and the like.
Next: Evaluating Membership Plans
Take one multimillion-dollar beachfront home, add in a private chef-prepared meal, multiple spa services and anything else a concierge can dream up, and you have the quintessential destination club vacation. While there’s no denying the appeal of this vacation option, it’s important to remember that joining a club is nothing less than a major financial commitment.
Given today’s economic turmoil, it’s essential that you take a hard look at any destination club you’re considering. Analyze the club’s membership costs and the breadth of its real estate portfolio, then carefully assess its financial stability.
Ask these questions as you begin your evaluation process.
How much do you want to spend?
Most clubs offer membership plans at a wide variety of price points, some starting at less than $100,000. The cost of joining a club depends somewhat on the average value of homes in that club’s portfolio. For instance, plans at High Country Club, whose homes average $1 million, range from $30,000 to $80,000. In contrast, plans at Solstice, whose homes average $6 million or more, run from $615,000 to $1.95 million. Ultimate Escapes divides its club into three segments, with various plans for its collection of $1 million, $2 million and $3 million residences; membership fees scale by the number of vacation days purchased and by the value of the home you’re buying access to.
The number of vacation days purchased also influences the cost of membership, including both the deposit and annual dues. Ultimate Escapes offers a collection of Elite membership plans with anywhere from 14 to 60 days. Its 60-day plan is $450,000, plus $46,000 in annual dues, while its 14-day plan is $200,000, plus $17,500 in annual dues.
A good way to evaluate the real cost of a destination club membership is to look at how a given plan breaks out on a cost-per-night basis. This is particularly helpful if you want to compare the cost of joining a club to the nightly price of renting a luxury villa or staying in a five-star hotel suite. We crunched the numbers for you and found that the average cost per night in the industry is $1,354, though the range is wide among clubs, with some plans topping $2,800 a night and others coming in at less than $400. (Our model takes into account the club membership deposit and annual dues over a 10-year period.)
To determine the cost per night for a specific club plan and see how various membership offerings stack up, use our cost-per-night calculator. For instance, if you’re considering a 14-day membership plan and anticipate spending a week in Cabo San Lucas and a week in Tuscany, you can figure out the cost per night of that plan to compare it to the price of renting a villa or booking a hotel suite in those areas.
How much vacation time do you want?
Destination club plans typically have a set number of days that members and their families can use at the homes each year. The good news is that you don’t have to travel much each year to find an option that fits your schedule. Plans range from as few as seven days to unlimited usage, depending on the club. You’ll need to realistically gauge the amount of time you travel, however, to not only maximize your membership but also to get the most cost-effective plan. Plans with more nights typically have a lower cost per night than entry-level plans, but that savings disappears if you buy a plan but neglect to use all of your allotted nights.
Within a club, the most expensive plans typically include more vacation days and better access to reservations during the holidays. Higher-end plans may also allow you to have more advance reservations on the books at any one time. And not surprisingly, plans with a greater number of days also carry higher annual dues.
Do you want to travel over the holidays?
Holiday bookings have become the Achilles heel of the industry as clubs are faced with the challenge of how to handle a member base jostling for home reservations at the same peak travel times. As a result, clubs have established extensive, and often complicated, rules governing how holiday reservations are divided among members.
Holiday reservation policies vary by club but there are a handful of basic rules. Clubs typically include more holiday reservations in plans with a higher number of nights. Clubs either fill those bookings on a first come, first-served basis or award them several times a year through a lottery system. Most clubs count on their members to plan ahead—way ahead, in fact. It’s not unusual for a club to allow holiday bookings a year, or even two years, in advance.
Beyond that, club policies vary, so be sure you understand the ins and outs of booking during peak seasons if you want to travel during those times. To help you sort through the options, we’ve compiled an overview of holiday reservation policies at the largest clubs.
There is another way clubs regulate holiday reservations: They don’t offer them on all plans. For example, Quintess has both holiday and non-holiday membership plans, and Exclusive Resorts sells holiday reservations as an à la carte addition to some of its plans. If a plan does not include holiday reservations, forget booking a residence over the weeks of Christmas, New Year’s and Presidents Day. Note that clubs may also include popular spring break weeks, the Fourth of July, Thanksgiving and even Veteran’s Day among their list of holiday travel periods.
How easy is it to make a reservation?
Finding out how a club handles home reservations at non-peak travel times is also important. Each plan typically includes a set number of advance reservations that can be made anywhere from 60 days to two years prior to the trip. Anything within a two-month window is typically designated a space-available reservation—some clubs offer unlimited amounts of these last-minute bookings.
Of course, even the ability to book a reservation doesn’t mean you are guaranteed to get a specific home. Look at the club’s member-to-home ratio for insight into how easy booking might be. A good balance is at least one home for every six members. If a club has a higher ratio of members to homes, capacity might be stretched thin.
Next: Assessing a Club’s Finances
Beyond flipping through the glossy sales brochures, you’ll need to thoroughly evaluate a club’s financial standing. Following the collapse of Tanner & Haley in 2006, the big players formed the Destination Club Association (DCA) and called for greater financial transparency in the industry. The DCA has made some inroads toward encouraging clubs to open their books and show members they can cover the refundable portion of deposits if a club should close.
Still, you should give yourself plenty of time conduct your own financial due diligence, interview club executives and talk with current members. Be sure to seek advice from your financial advisor, attorney and other professionals during this process.
Here are some questions to get you started.
Can the club pass a net asset test?
Ask the club to show you financial statements that have been audited by a third-party accounting firm. You want to know whether the club can pass a net asset test, a measure of whether a club has enough real estate to sell and cash on hand to cover its membership deposit obligations.
Here’s an example of how it works: If a club needs to be able to refund $1 million worth of membership deposits, the combined value of its real estate portfolio and cash in the bank needs to meet, or exceed, $1 million, in order to cover the full obligation. If the club meets that financial measure, it passes the net asset test. If the same club has only $500,000 worth of real estate and cash on hand, the club would not be able to pay back its members and will fail the net asset test.
A club should be able to tell you if it passed a net asset test and show you a third party-certified form to confirm it. The DCA requires that its club members to pass a net asset test as a condition of membership. That said, the group set the passing bar at covering two-thirds, rather than 100 percent of the debt of deposit obligations—most member clubs exceed that, and even have enough assets on hand to cover more than 100 percent of their deposits.
How many homes does the club own? How many does it lease?
Look at the number of leased homes in a club’s portfolio. For the most part, destination clubs own the homes in their portfolio, but leased homes are a way for a club to test out a new destination with members or meet demand during peak travel periods. No more than 20 or 25 percent of a portfolio should be made up of leased properties. Tanner & Haley’s financial struggles resulted in part from the club’s excessive use of leased homes. When members began to clamor for deposit refunds, the club had nothing to sell.
Who are the club executives?
Beyond looking at a club’s raw numbers, you can glean a lot about the health of a club simply by talking to its executives. Does the executive team have a good track record in the real estate and hospitality industries? Are they willing to open their books to potential members? Are they forthcoming about the number of members that have left the club and the reasons for their departure?
What do members say?
Current club members can be an excellent source of information, and may tell you things the executives won’t. Do they have a good impression of the club management? Do they feel that the club keeps them well informed about changes in the club and new property launches?
What’s your exit strategy?
Before you join a club, you should know what’s going to happen if you later want to resign. Be sure to find out how much of your initial membership deposit you’ll get back. At most clubs, deposits are at least partially refundable, with refunds ranging from 75 to 100 percent, or sometimes even more.
Next: Frequently Asked Questions
Can I always book the home I want? Is there a guarantee?
No. There is no guarantee that you will be able to secure a specific home. Most clubs operate on a first come, first-served policy for reservations. One exception is holiday bookings, which, depending on the club, may be handed out on a lottery system.
Is there a chance that the club I join could go out of business?
Yes. Tanner & Haley is the most high-profile destination club to enter bankruptcy, but it is not the only club that has struggled. Over the past year, two smaller destination clubs, My Global Playground and Portofino Club, called it quits. The best strategy is to look at clubs with established track records and a management team with solid experience in the hospitality and real estate industries. Be sure to review a club’s financial statements to make sure it can pass a net asset test.
Is joining a destination club a better value than renting a villa?
It depends on where you plan on vacationing. Destination clubs would argue that their model, with a refundable deposit, is in fact a better value for travelers who might otherwise rent out large villas or multiple hotel rooms. You can look at a club’s cost per night to make comparisons.
In truth, it largely depends on the location of the homes. Say a destination club plan has a cost per night of $1,000. You likely would not be able to find a four-bedroom luxury home in Aspen in the prime winter ski season for less than a $1,000 a night, so the destination club is the better deal. However, in Stowe, Ver., you could probably find a home rental for less than $1,000 a night, so using your destination club nights there would be the more expensive way to vacation.
There is also the quality factor. Clubs residences offer top-quality furnishings and finishes, as well as a local concierge and other services. You won’t always these find amenities with a villa rental.
Can my extended family use the homes without me?
It depends on the club. Quintess, for example, allows extended family use, while Exclusive Resorts sells that perk as an add-on option to its plans.
Can I book reservations online, or do I need to speak to a representative at the club?
Destination clubs’ booking systems vary. Some, including the Lusso Collection, allow members to book properties online. Exclusive Resorts even has an online wait-list for properties. Smaller clubs that are newer entrants to the industry, including One Key World, handle reservations the old-fashioned way, over the phone.
Next: Due Diligence Questions
| 1. | What is the member growth rate from the previous year? |
| 2. | Is there a waiting list to resign? If so, how many people are on the resignation list? |
| 3. | Can the club provide audited financial statements to demonstrate that at any point in time there is enough cash and equity in the homes to retire the refundable portion of the membership deposit? |
| 4. | What are the minimum and maximum lengths of stay per location? |
| 5. | What is the allowable increase for annual dues? |
| 6. | How many destinations are planned? |
| 7. | What happens to my membership if the club merges or is acquired? |
| 8. | Do members receive any guarantee of availability for peak periods? |
| 9. | How does a member check availability? |
| 10. | What percentage of the homes in the portfolio are leased versus owned? |
| 11. | How many residences are owned and opened? |
| 12. | What is the occupant capacity of the homes? Are pets allowed? |
| 13. | Are there multiple homes at the most popular destinations? |
| 14. | How many days of possible occupancy are there across all the homes? |
| 15. | Can a member roll over unused days from one year to the next? |
Next: The Big Players
Abercrombie & Kent Residence Club
Abercrombie & Kent, the newest club entrant, brings the luxury tour operator brand to the destination club market. The club launched in September 2008 and currently has 30 homes in Sun Valley, New York City and the South of France, among other locations.
Distinctive Holiday Homes
This boutique destination club now has more than 50 members and a portfolio of residences that are concentrated in non-U.S. locations. Home locations include Fiji, Australia, and Paris.
Exclusive Resorts
With more than 3,000 members, Exclusive Resorts is the largest destination club. It has a collection of homes valued at an average of $3 million each. The club’s more than 350 residences are spread among 40 locations, including Tuscany, Costa Rica and Vail, Colo. It also offers members a collection of high-end custom excursions, including a trip to the Galapagos Islands.
The Lusso Collection
This boutique destination club now has more than 150 members. The club has 30 homes in 16 locations, including Anguilla and Jackson Hole, and most residences have a vehicle. This year the club added a second membership plan with 21 days to supplement its unlimited plan offering.
One Key
This club operates with a different business model—a prepaid membership card secures 15, 25 or 45 nights of use. There are no annual dues, but the membership fee is non-refundable.
Quintess, LRW
With a portfolio of homes valued at an average of $4.25 million each, Quintess’ 80 properties extend from London to California’s Lake Tahoe. The company has a partnership with Leading Hotels of the World, the luxury hotel collection, and offers custom tours to members.
Solstice
This ultra-luxury destination club has homes that average $6 million in value. Locations include Napa Valley and Florence. Most residences come equipped with a vehicle.
Ultimate Escapes
This second-largest destination club has homes in 50 locations, including Hawaii’s Big Island, Deer Valley and Cabo San Lucas. The club offers three tiers of membership, each with a variety of plans, that give members access to homes valued from $1 million – $3 million each. The club has also partnerships with hotels and travel agents.