Most of us survive, or are remaining alive, or are coping with, the economic free-fall by working daily through the conundra and penumbra of economic shadow and puzzle. Many read the latest news with two distinct mindsets: tolerance – what can possibly happen next? And terror – Oh, no! Another bankruptcy? Yet the true horror may lie in the old saying: a recession is when it happens to your neighbor, a depression is when it happens to you.

In both cases, destination club members (and potential members) appear to be on edge, sensing they may be participants – either now or sometime soon – in a decline that has yet to hit bottom.  Those who are interested in joining a club must deal with the complicated news that emerges from the industry – from bankruptcies to member dissatisfaction; and for those who are already members of a well-functioning destination club, there may be a lingering question – how long will MY club last… and is my club safe from the economic downturn?

So, what’s happening to the destination club industry?  Perhaps it is best explained by a former member, who said the industry is being shot with some inevitable, economic truth – comprised of real estate valuations tanking, potential members not buying, and lenders not lending.

These occurrences brought the growth of certain clubs to a quick, whiplash-inducing halt.  First, High Country Club declared Chapter 11, then Chapter 7, and 375 members lost their membership deposits, and had their 2009 trips canceled. The LUSSO Collection was the next to go, this time with around 150 members. They too first declared Chapter 11, then Chapter 7. Membership deposits for both clubs, averaging between $75,000 and $450,000 were gone also. And members, some of whom had already gone through the Tanner & Haley bankruptcy, felt quite raw.  Members said they did not know the club was in trouble until the last second. Some new members said their deposits were taken in 2008, even though the club salespeople and CEOs knew the club was, in their words, “on life support.“

Surviving this kind of DC experience is complicated, as the members of bankrupted clubs have been asked to join other clubs. Some are hesitant, some are looking for the best deal, some are sick of the whole thing and won’t join anything, even a church group, ever again. And still others have paid their dues, but will never refer any friends.  “Who in their right mind would join a DC now?” said a member on Destination Club Forums, a popular discussion place for members and others, recently. And yet, if anyone has ever experienced the pleasure derived from staying the night at a high end residence in an elite destination, the positive memorable experience remains, so that the idea is still great.

But great memories have been tempered by those who have also lost their deposits, as well as future vacations, in 2009. So the old human issues of trust and betrayal, anger and anxiety, self blame and blaming others arise again – this time with the force of Old Faithful. What to do lies in learning what not to do the next time.  Inside this heavily simplistic educational frame are questions that should be asked when the potential members are in the due diligence phase of decision making. Here are some pointed and relevant questions to ask that will help provide a more complete picture of the club of interest. These are not the easiest questions to answer either, but if they are answered to a potential member’s satisfaction, then it might go a long way in helping a member decide about joining, and allow him or her to feel like less of a victim and more of a survivor in such complex economic times:

• What is the business plan and vision for the club?
• What is your model? Is it equity or non-equity? Debt or no debt? Appreciation or no appreciation possibility? Does it vary depending on the member? For non-equity clubs, do you have members who are also investors? How many members are investors? What are the club terms for those investor members (i.e., is it different than mine)?
• How do you plan to grow the club? What is your marketing plan and budget?
• What assurances can you provide (in writing) that your club has enough assets (e.g. home equity, bond, or cash) to be able to redeem my membership deposit refund at any time?
• How can the club demonstrate this?
• What system does the club use for holiday and peak period reservations?
• How does the club ensure that there is enough accessibility for members to travel on short notice?
• What is the ratio of members to residences?
• What additional services are provided by the club and included in the annual dues? What services aren’t provided?
• When I will know if annual dues will be increased?
• Are there any extra fees or changes beyond the annual dues that I should be aware of?
• How many members are currently on the member resignation list?
• Are there any members that do not pay dues?
• How many members pay dues lower than the dues that I will be paying?
• What is the average per night dues paid by members?
• What is the current appraised value of the portfolio? How recent are those appraisals?
• What is the current outstanding mortgage debt? What interest rate is payable in connection with that debt?
• What is the current debt owed other than outstanding mortgages? What interest rate is payable in connection with this debt? When is that debt due? What are the conditions or requirements for extensions or additional sums?
• What is owed to suppliers, members, investors or otherwise?
• What is the financial commitment of your investors or sponsors? What are the terms of that financial commitment? Are there conditions or hurdles to receiving additional commitments? Who is your sponsor or investor?
• What was your average occupancy % for 2008? What is your projected occupancy for 2009? Go through the reservation calendar.
• What litigation has been filed or threatened against the club and/or its principals?
• What have your new member sales been post-September 1, 2008? On average, how many prospect contacts do you receive in a month?
• Do you operate on a “3 in: 1 out” basis for resignations?
• Make sure your accountant reviews the financials, paying particularly close attention to the cash flow statement, and let your attorney review all documents before you sign (I know those are not questions, but they're very important ).
• Do you provide members with annual audited financials?
• How often do you have member meetings and are they open for questions or are questions screened?
• Do you facilitate or encourage communications among your members (either a forum that is not heavily moderated and/or in person member meetings)?
• Do you have any member representation on the actual board for the DC (not a "member's board")?
• Do you provide access to all levels of management in the event of questions and concerns?
• Do members have the option or possibility of removing management if desired?
• What percentage of each new deposit is used strictly for acquiring real estate (not leases and not finance costs)?
• How many properties in your portfolio are leased?
• How are the properties owned?
• What happens in a wind-down or liquidation scenario?
• How long are you sustainable without new sales? Is your budget balanced? How many sales are required in order to meet your budget?
• Are any properties being phased out of the portfolio and when? Which ones?
• What new properties are being brought on line and when? What is the status of each one (purchased, under contract, in the due diligence phase, or on the wish list)?
• How do holiday reservations work? Do certain members have priority over other members for holidays? How many long-term reservations can you hold on the books at any one time?

Editor's note: Agreed the above is an exhaustive list - and not required by clubs to provide. However, the more questions a prospective member asks, and the more transparency the club provides, the better the chance that expectations are met, and thus the survival of the club.

This article is part 1 of 2 from Luxury Lifestyle Journalist, Susan Kime, on the Survival of the Destination Club Industry.

Written by :

Susan Kime

 

Comments (1)

WSJ.com

For those who want the inside scoop on destination clubs, there’s an article called, “Destination Clubs and Other Holidays from Hell” on WSJ.com. Beneath the article, a debate broke out in the comments section in which information was made public that the destination clubs don’t want you to know about. Following is a link:

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http://blogs.wsj.com/wealth/2009/01/26/destination-clubs-and-other-holidays-from-hell/

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Leah Powell , February 28, 2009 | url

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