Homes Away From Home
An alternative to hotels, destination clubs offer travelers a myriad of luxe vacation homes all over the world
From the Print Edition:
David Caruso, Jan/Feb 2007
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Jim Tousignant, chief executive officer of Ultimate Resort, another destination club, agrees. "If you want to go to the same place at the same time every year, then a destination club is not for you. Buying a home or fractional is."
This is one of the most common misconceptions of the destination club industry, because it competes with fractional ownership programs as well as traditional vacation home ownership. In fractional ownership, whether it is a traditional time share or the newer "residence club" models being offered by luxury hotel chains such as Ritz-Carlton, Fairmont and Four Seasons (which function more like destination clubs), you are buying a deeded interest in a particular piece of property. Buying into the Ritz-Carlton private residence club, for instance, allows you to trade a portion of your allotted days for vacations at other locations, but you do not buy into the overall club. If, say, you bought a fractional share at its club in Beaver Creek, Colorado, you would own an interest, perhaps one-twelfth if you purchased a month, of that particular property, and receive a deed to that effect.
While destination clubs are evolving and some have an equity component, most of their members don't own anything other than a membership in the club. The club uses members' deposit money to purchase real estate and the annual fees to cover the operating overhead, including concierge services, maintenance and reservations. In exchange, members have access to a variety of properties, some in city centers, some not, for between one and two months a year.
"The basic model is non-equity, the same as a traditional golf country club," says Shove. "Some clubs offer two or three different levels of financial commitment, anywhere between $50,000 and half a million dollars or more, in return for what is typically between 20 and 45 days of use of the club's real estate each year. Each club is formed around a theoretical profile of its would-be members, which is what drives its real estate acquisition strategy: how big are the houses, how expensive, where are they, what are the amenities? Most clubs do a mix, and most buy one- to two-bedroom urban apartments and three- to five-bedroom vacation homes."
Every club has a mechanism for returning member deposits, usually 80 to 100 percent of the original amount, but certain rules apply. The most common is "three in, one out," meaning that if you announce your intention to leave, you are put on a list, and every time three new members sign up, one can leave and get a refund.
Myriad variations on this basic model exist, and some destination clubs have introduced an equity component. Others are focused on a particular lifestyle such as golf or fly fishing. But across the board, the major differentiator is the value of the homes themselves.
When Exclusive Resorts launched in 2002, for instance, its homes had an average value of around $2 million, and today its average home is worth close to $3 million. Other clubs target less expensive real estate to offer value pricing, while the most expensive purchase one-of-a-kind trophy homes that can run as high as $6 million. What type of house you get is largely determined by the club's vision of its members and the fees it charges. However, with very few exceptions, the dwellings all fall within four categories of locations: beach, golf, ski/mountain and urban.
Within the beach category, the Caribbean, Hawaii, Mexico, Florida and Central America, especially Costa Rica, are the most popular, and virtually every club executive cited Los Cabos, Mexico, as one of its most popular destinations. Most clubs have homes in Scottsdale, Arizona, and Kiawah Island, South Carolina, for golfers. Aspen, Whistler and Beaver Creek are ski resort favorites, and New York, London, Paris and San Francisco are the top urban markets. Urban properties are either condos or suites in hotels that have been specially retrofitted to mirror the standards at the club's freestanding homes. Only a few clubs have gone further afield abroad, one of which, Exclusive Resorts, has four homes in Tuscany (with another six expected to be available there in 2008).
Each club offers hotel-like concierge services that can arrange everything from pre-stocked refrigerators to local activities. Every club also promises certain standards so that every home in its portfolio offers a consistent level of service and a familiar layout. "The one thing these guys have delivered on in spades is the houses themselves," says Jeff Spears, a partner with San FranciscoÐbased Presidio Financial Partners, who joined Exclusive Resorts. "The quality standards are awesome and the setup is consistent—where the kitchen utensils are, the same TV and stereo—it's almost like yours at home, so you don't have to relearn it every time you travel. The kids love it because every place has a video game player and DVD [player]."
The destination club industry is still young, and there have been some growing pains that prospective buyers need to be aware of. The two biggest concerns for consumers are availability of properties and the security of their often-substantial financial investment. The industry's first real crisis illustrates that both concerns are valid and that companies shouldn't shoot for the moon right away.
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