In a destination club, in exchange for a one-time, upfront, mostly refundable membership fee, and annual membership dues, a member gets access to a roster of luxury vacation homes around the world, which can be booked based on availability and reservation priorities, plus personalized services and resort amenities such as beach clubs, luxury spas, private chefs and more.

Destination clubs were "invented" in 1998, when Rob McGrath, a veteran of the luxury timeshare

Timeshare

A timeshare is a form of ownership or right to the use of a property, or the term used to describe such properties. These properties are typically resort condominium units, in which multiple parties hold rights to use the property, and each sharer is allotted a period of time in which they may use...

 development business, launched Private Retreats. Since then over 30 companies have launched clubs targeting affluent families that want the benefits of second home ownership, but with more flexibility and choice in where they vacation each year.

What is included

Here is a list of benefits and privileges typically offered by destination clubs:

• Access to 3–5 bedroom homes (smaller condos in city locations), either on resort properties or near key locations (ski resort, beach etc), providing significantly more room than accommodations at luxury resorts and hotels.
• Homes are owned and managed by the club or leased by the club, and are for the exclusive use of club members
• 10–60 days of home usage at different homes across multiple locations.
• The ability to book homes in advance and on a “space available” basis, as well as a system to handle the demand for holiday or peak periods.
• High service levels including: pre-departure planning, on-location concierge services and daily housekeeping service.
• Furnishings, appliances and audio-visual equipment that would be considered “luxury class,” such as Viking stoves and flat-panel TVs.
• Additional membership privileges and benefits, including special club events, and access to luxury resort amenities.

Membership model

While there are several variations, the basic choice is between equity and non-equity clubs. This is similar to the membership model choices at country clubs.

In both models, club members provide a large up-front sum and an annual fee. In non-equity clubs, they enjoy the hospitality benefits of the club, but don’t own an interest in the homes and so are not impacted by the real estate appreciation or losses of the club's residence portfolio. The up-front payment is a deposit, and when they resign from the club, members receive 75% to 100% of that deposit back. Exclusive Resorts, which began operations in 2003, is the leading club of this type. There are some exceptions as noted below with the "hybrid" model.

With equity clubs, the up-front payment can be considered an investment of sorts (or at least a reduction in the opportunity cost

Opportunity cost

Opportunity cost is the cost of any activity measured in terms of the value of the best alternative that is not chosen . It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The opportunity cost is also the...

 of making the up-front payment), subject to typical investment risks. When exiting the club, the refund of that fee is adjusted to reflect changes to the value of the home portfolio or in the fee for new members. Various clubs have different ways of providing this benefit. Also, with an equity club, the members own the club's real estate portfolio, which provides additional security of the membership deposits. The Abercrombie and Kent Residence Club, formed by a combination of two leading equity clubs, Crescendo and Bellehavens, is the current leader with this benefit.

Another variation is the “hybrid” model, which combines a non-equity club with an upside benefit that is tied to the value of a club membership.

Although the equity model has obvious appeal, a prospective member should consider numerous factors in making the decision to join a destination club. Members are making both a financial and a vacation lifestyle decision, and should consider each aspect in turn.

History

Private Retreats launched the industry in 1998, with one club, Private Retreats, under the company name Preferred Retreats. The company was later renamed Tanner and Haley, with over 900 members in 2006. Exclusive Resorts entered the business in 2003 and with the backing of AOL founder Steve Case, became the industry leader in terms of members, locations and homes. By the end of 2009, the club claimed over 3,250 members, nearly 400 homes in more than 35 locations, and delivered nearly 100,000 completed vacations. Following the success of Exclusive Resorts, from 2003 to 2006 entrepreneurs launched competitive clubs such as Quintess, Hideaways, Private Escapes, and Ultimate Resort. Specialty clubs joined the mix as well, for instance The Markers Club for golf. In 2009, a Fortune 200 company, Marriott International

Marriott International

Marriott International, Inc. is a worldwide operator and franchisor of a broad portfolio of hotels and related lodging facilities. Founded by J. Willard Marriott, the company is now led by son J.W. Marriott, Jr...

 Inc. entered the market when they launched the Ritz-Carlton Destination Club.

Despite generally strong membership sales across the industry in the summer of 2006, Tanner & Haley Resorts entered Chapter 11

Chapter 11, Title 11, United States Code

Chapter 11 is a chapter of the United States Bankruptcy Code, which permits reorganization under the bankruptcy laws of the United States. Chapter 11 bankruptcy is available to every business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most...

bankruptcy proceedings. As a group, members of that club lost more than $200 million in the bankruptcy. However, the real estate and members of Tanner and Haley were acquired by another destination club, Ultimate Resort. May 2008 Ultimate Resorts and Private Escapes merged to form Ultimate Escape.
Ultimately, this led to the creation of several entities focused on consumer protection. The Destination Club Association was created to help govern the industry by the leading clubs and supported financial transparency by clubs and an increase in truth in advertising. Halogen Guides and SherpaReport serve as media outlets focusing on destination club coverage. The Veras Group serves as a third party advisory firm.

Well-managed destination clubs remain an attractive vacation option for affluent families, and companies within the space have continued to adapt and grow. It is also important to consider how the recent recession has affected customer attitudes related to luxury products and vacation experiences.

Deposits

Some have asserted that the destination club (DC) industry has an Achilles Heel – the refundable portion of the membership fee. If the club is deluged with members wanting to exit there may be no new members wanting to join. The members are captured and can't exit the club with the industry standard of 3 in 1 out rule. However, destination clubs typically include contractual protections requiring liquidation after a certain period of time if not enough new members have joined to offset those resigning, in which case the liquidation proceeds are distributed to fulfill the refund requirements. Equity destination clubs are designed to reduce this risk significantly by providing members with ownership and priority over other creditors, making fluctations in the value of the club's residence portfolio an important consideration.