Before joining a destination club, ask questions
Imagine having your pick of vacation villas worthy of millionaires in the world’s most beautiful spots, with your every need attended to, including airport transfers and groceries in the fridge.
Of course there’s a catch. You may need $100,000 or more to sign up, plus pay thousands in annual dues.
Elite travelers who think this is a good deal have joined destination clubs in ever-growing numbers. A distant, wealthy cousin of time shares, such clubs typically sell rights to spend several weeks in various swanky homes, villas and condos around the globe. Some clubs offer shared ownership too.
Haven’t heard of destination clubs? That’s not surprising. Fewer than 10,000 people belong to them, experts estimate. But that’s about to change.
Abercrombie & Kent, the venerable luxury tour operator, is launching its own destination club. Other global leisure companies are also “exploring the product,” said Scott Berman, U.S. advisory leader for hospitality and consulting at PricewaterhouseCoopers, an international network of consultants.
He declined to provide details.
Whether destination clubs are safe investments is open to debate. Although the model has been around for a decade, only in the last five years have the clubs seen “meteoric growth,” Berman said. So the long-term outlook isn’t known.
In 2006, one of the industry’s major players, Tanner & Haley Resorts, filed for Chapter 11 reorganization. Members collectively lost more than $200 million, L.A. attorney Brian Kabateck, who is suing on behalf of 571 of them.
“You’re buying, in some sense, a pig in a poke,” Kabateck said of destination clubs. His clients had neither voting rights nor equity and therefore no real security, he said.
But Berman, although not ruling out more failures in the industry, regards Tanner & Haley as an anomaly. He said several of his colleagues who belonged to destination clubs said they were “very, very pleased.”
Jamie Cheng, co-founder and chief analyst for Halogen Guides (formerly Helium Report), an online resource for luxury consumers, said the Tanner & Haley case “was indicative of some of the flaws of the early clubs” but was not representative of all destination clubs.
One of the companies that Kabateck is suing is Abercrombie & Kent, which lent its name to two destination clubs run by a corporate predecessor of Tanner & Haley.
Kabateck said A&K misled club members about its role and bears some blame for the failures. The company denies responsibility, saying it merely licensed its name in an agreement that ended more than a year before the Chapter 11 filing.
Nonetheless, Jarvis J. Slade Jr., president of A&K’s new club, said, “There are lessons to be learned from what happened.”
The new Abercrombie & Kent Residence Club, launching in the fall, will have a different economic model, he said. Members will have equity in the properties, and “we will set a realistic expectation” on home availability. In lieu of some home stays, members will be able to take A&K tours, Slade added.
Prospective members of any destination club should ask questions, Cheng said, including:
* Does the club have enough size and capital to support growth and acquire homes?
* Do its managers have expertise in hospitality?
* How available are the properties? Ask to log on to the club’s database and search for dates.
Compare costs of club membership with what you would actually spend for vacations or a second home. For certain well-heeled travelers, it can pencil out, Cheng said.
The appeal is undeniable. Consider Jim Pehta, a retired software executive from Oak Brook, Ill.
Pehta and his wife, Marjorie, had joined both A&K-branded clubs run by Tanner & Haley’s precursor. For more than two years, they jetted to luxurious homes in places such as the West Indies, London and Mexico’s Puerta Vallarta.
“Things were glorious,” Pehta said. “Then the roof caved in.”
The couple said they lost nearly $400,000 in deposits in the 2006 bankruptcy.
A few months later, they joined another destination club, Ultimate Resort, which acquired Tanner & Haley’s assets and later merged with another club.
Despite some issues with home availability, Pehta says his current club is well-run, adding, “We’re not sour on the idea.”
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