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Homes Away From Home

An alternative to hotels, destination clubs offer travelers a myriad of luxe vacation homes all over the world
Larry Olmsted
From the Print Edition:
David Caruso, Jan/Feb 2007

(continued from page 3)

"You are starting to see consolidation in the industry," agreed Ultimate Resort's Tousignant, whose acquisition of Tanner & Haley's assets out of bankruptcy increased his club's real estate and member portfolio. "When we started three years ago there were only six or eight clubs, and very quickly after us several more started, but in the last year I have seen only one. Clubs are starting to differentiate themselves, and we really only compete against about three of them, including, to a degree, Exclusive Resorts. Exclusive is a great club, but a lot of people don't want to be in a club with 2,500 members and growing. The whole industry started out with the idea of an intimate, private country club."

Besides size and cost of homes, the major differentiator emerging between clubs is the way they secure your investment. This is where Greg Shove's Helium Report comes in handy. His Web site offers a 50-page report on the industry, along with 20 essential questions you should ask before joining. He recommends meeting with a principal of the company and speaking to at least three current members. "We tell consumers that if the club can't answer even one of these 20 questions, do not join. It's that simple.

"We call the deposit 'parking your money in someone else's garage.' That works as long as you can get it back when it is time to go. As we saw with Tanner & Haley, it can become a problem. The ultimate litmus test is, in the worst-case scenario, if they wind down, can they return all the membership fees? That is, do they have enough assets to satisfy every member?"

Exclusive Resorts claims it can. "Our $800 million in real estate, plus cash on hand, minus our liability for member deposits and outstanding debt on the property is a positive number so, unlike many companies out there, if we can sell our real estate for what it is worth, we can cover all our obligations, and that's the quick test of financial security," said Handler.

Some clubs have begun to adopt equity-based models, of which BelleHavens is perhaps the best example, since its members own the houses lock, stock and barrel—without any debt. Gilson, the club's president, also runs Banyan Properties, which builds or buys homes for the club, adds them to the usage pool, and then transfers them entirely to BelleHavens Inc., a nonprofit club. Every time 10 new members join, the club acquires one home, debt free. It currently has about 50 members and 11 homes, five of which are wholly owned by the club, which in turn is wholly owned by its members. This strategy was key.

"One reason people buy second homes is the potential for appreciation, but that was missing in these models," says Gilson. "They gave members usage but not equity. From the beginning we were determined to give equity, which is the best asset protection…. We guarantee one debt-free property for every ten members. Now we are seeing more equity-based clubs, but not all equity clubs are created equal. Some say you'll get the current value of your membership, but that's just a proxy. We sell the same kind of equity you have in your house, because our members own the houses."

"BelleHavens provides a very transparent level of financial security," says Shove. "Crescendo, based in the Bay Area, is another twist: it is really a real estate investment company, regulated by the SEC. You invest, they use the funds to buy homes and then make them available to investors. On the back end it works like a destination club, but gives the investor the opportunity to capitalize on any appreciation. In a traditional or non-equity club, you do not capture any appreciation."

"Our membership actually owns the club," says Quintess's Estler, in yet another wrinkle on the model. "Think of it as a golf country club. The membership fee lets you join. But you can also be an owner by investing additional dollars and getting equity, and 65 percent of our members have chosen to buy a piece of the club, and they own the majority of the club. They get totally transparent financial reporting with quarterly Big Four audit reports." Similarly, Ultimate Resort has introduced a lifetime membership model in which it promises to refund 80 percent of the membership deposit at current value, not based on the original price, which has been the norm.

The industry is still evolving. Reservation systems and policies are being refined and international reciprocity agreements, which will extend the range of destinations offered, are widely expected. Clubs will also continue to add value with special events and activities for members, partnerships with private jet companies and other member benefits. But experts agree that the clubs are first and foremost discretionary lifestyle purchases, not investments. "It's silly to look at it as an investment," says Schiciano, the professional investor. "Pay your money, enjoy your vacation. It is what it is."

Larry Olmsted is a Cigar Aficionado contributing editor.


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