Are Destination Clubs Necessary In This Era of AirBNB?

 It's been more than a decade since my last post -- and longer than that since the debacle of many leading (if not bleeding) destination clubs -- so a little reflection is in order. The appeal of destination clubs was obvious for those with the means to afford more than timeshares. 

Sharing a portfolio of homes with fellow members made sense when home prices were rising. Many of the companies that faltered did so following the great recessions spurred by the subprime lending crisis. They would be thriving in today's climate.

However, we also now have easy access to luxurious properties through AirBNB. Sure, we had this a decade ago with VRBO and HomeAway, but AirBNB made it more mainstream. I came back from Pigeon Forge last week, and I was able to stay in a solid 2 bedroom home for a fraction of what a hotel suite would cost. 

The missing secret sauce of AirBNB is that the renters don't get any of the spoils of appreciating real estate values. The property owner does, of course, but there's not buy-in. I wonder if there's a middle road that can satisfy both itches. For now we can just lament the destination clubs that buckled a decade ago, and applaud the ones that made the right adjustments to continue thriving in today's kinder climate.

Why do destination club forums die?

I've sat on the DestinationClubs.net domain for a bit, wondering if I should flesh it out.

Once DestinationClubForums.com was acquired by Ultimate Escapes and shut down, I thought hard about just filling the void and setting up DestinationClubs.net as a new forum. Unfortunately, having well-heeled visitors talking out loud about a volatile travel niche where non-disclosures are common makes a forum a legal liability. In short, I passed on the idea of turning the otherwise dorman domain into a forum.

I didn't need yet another reminder on the frailty of DC-based discussion boards, but got it over the weekend when UltimateMembers.org -- a once popular hub of exile for Ultimate Escape members after the club filed for bankruptcy last year -- went down.

I never knew the owner, but some quick snooping shows that the domain was registered on January 21, 2009. The two year term ran out over the weekend. It appears as if either the original owner forgot to renew the domain and someone snagged it or if the owner renewed the domain but forgot to renew the web-hosting account for the forum.

We'll see, but in reality the forum had pretty much run its course. There were only a couple of posts this month. Ultimate Escape members have come to face the cruel reality that their club is toast, and with it most of their six-figure deposits. The forum was important, at least from a historical perspective. It also would have come in handy as members begin to wonder what tax losses may be possible as a result of the nixed club. Legal options and lessons learned are matters worth exploring and preserving -- for UE members and future clubs that may teeter.

For now, TugBBS.com appears to be the closest to the community forum, though it's just a small group within the larger timeshare-based hub.

Can a destination clubs forum work? The largest club has its own forum for members being the member wall. Now that the remaining clubs are significantly smaller, the audience may not exist for a niche-specific forum. What do you think?

The Fatal Flaw of Demeure for Ultimate Escapes

In its latest email to former Ultimate Escapes members, Demeure insists that the rates on the acquired and leased homes from the bankrupt club "compare favorably with typical market rates."

Isn't that why this will never work? There is no promised 40% to 50% discount!

I can see why a property owner may contribute a vacation home into the Demeure pool under its original model. It's a good way to drum up revenue or create a homeswap situation by discounting pockets of availability. They can afford to take a hit, because the home would probably be vacant regardless. I find it interesting that availability calendars aren't available, because I'm guessing most of these ownere are keeping the holidays and peak periods and submitting only the seasonal lulls.

However, Demeure has to take a different tact on the UE homes. It's not a hobby or vanity purchase. It needs to at least break even (so its real estate arm can have zero carrying costs as the value of the purchased property appreciates or to have the leases make fiscal sense). Therefore, you're not getting VRBO-esque prices from someone who is renting out a home for the sake of generating SOME revenue off their second home instead of running it as an actual profit center.

In theory, Demeure should be offering the Ultimate Escapes homes at 40% to 50% of the rates they are now proposing on its website. It is why anyone would join Demeure. Prepaying for what is essentially market prices doesn't make any sense to a potential member, sadly enough.

Next?

An Open Letter to Demeure

As one of the nearly 1,300 members -- former members, I guess -- of Ultimate Escapes, thank you for being the only company willing to bid on the club and acquire interests in enough of its former properties to provide the closest travel experience to that which we were once accustomed to.

Thank you.

Now go away.

I don't mean to look a gift horse in the mouth -- even if Ultimate Escapes is metaphorically a dead horse that we're beating -- but I don't think you get us.

Few of us were paying the dues that we were paying, simply for the benefit of travel. More than half of us are former Tanner & Haley members, diligently paying our dues to earn back our original deposits that we forked over to the Abercrombie & Kent-licensed club that filed for bankruptcy. Three more years and we could have made it onto the resignation list. Hundreds more of us came from Private Escapes. As part of the merger, we had to stick around 18 months after the merger's completion. This would have opened the resignation floodgate come February of next year.

We paid our dues because it was the right thing to do, and it helped keep the club going -- selfishly -- under the now obliterated hope that a renaissance in luxury travel and related real estate would restore value in our properties and populate the pipeline with potential new members to cash us out.

We never had the choice to downgrade our plans, as many of us probably would have as perks dried up and the last minute scrambles to use up remaining travel days got old.

After attending tonight's webinar, it's clear that you have either overestimated our loyalty to the model or our desire to pay as much as we have to travel as much as we have.

We were just protecting the Lost island, going through the motions until we can kid Hurley to take our place.

I'm sorry if we somehow made you believe that we'd be willing to collectively put up $60 million over five years to keep this charade going. There's no deposit to protect anymore. You certainly didn't take it, but surely you have to understand why most of us will likely spend LESS -- and in some cases far less -- to travel in 2011.

Give us the option to spend less. Give us the option to become traditional Demeure members, without the $2,500 initiation and allow us to pay as we go. When nostalgia hits, I wouldn't mind revisiting one of the UE properties you acquired -- but I'm certainly not going to do it on a prepaid model with expiring travel dollars every year.

I can't speak for all of my fellow members. Your plan may sound enticing to a handful -- if not more. However, you have to keep in mind that just as Quintess offered Lusso members their original deposits back after five years and Ultimate Escapes offered T&H members their original deposits back after seven years, you're trying to get us into making Demeure the center of our luxury travel plans for the next five years without a carrot at the end. Obviously the counterargument there is that UE went bankrupt making that offer and that Quintess may or may not be around to honor its own deal.

Yes, but that still doesn't make YOUR deal a good one. UE members are actually getting a worse deal than non-UE members, and that's unreal. Waiving $3 million in initiating fees in exchange for $60 million over the next five years is not a sound trade, especially when we both know that more than $3 million of that $60 million will go squandered because we can't choose lower committments and unusual annual prepaid travel gets zapped. Even gift cards aren't that cruel anymore.

Hopefully you will realize that you're dealing with a lot of folks who can appreciate upscale travel experiences but are too jaded to pay for the sake of paying.

Sweeten the pot. Allow for members to prepay for a fraction of what they used to pay. If the product is good enough, we're upgrade soon enough.

If not, we've just wasted one another's time here.

3 Questions for Equity Estates Destination Club

Equity Estates is one of the more compelling destination clubs on the market. It follows an equity model, where 80% of all initial deposits are earmarked for property purchases -- and members are financially vested in the owned portfolio.

Members pay for 15 or 30 nights of annual usage, with plans starting at an initial investment of $197,500 and annual dues of $9.250 for the 15-night executive plan.

The homes appear stunning, averaging $3 million apiece. Members can stay at a property for as little as a single night, whereas some clubs have a two or three night minimum. Come November, 2021 -- 15 years after the club was founded -- the club will begin liquidating its properties and pay back its member investors. The members will get 100% of their initial deposits (if the homes appreciate enough to make that possible -- and remember that they have to appreciate by 25% in the first place to make up the gap between 80% and 100% initially). After that, members receive 80% of the sales proceeds. The club takes a modest 20% cut.

It's a great model on many different levels. In fact, it may be the best.

However, after attending a webinar presentation, I'm left with three problematic questions that I think any prospective member should make sure are addressed.

1. If real estate prices have generall fallen over the past few years, why are the initial deposits inching higher every year?

This is important. The club claims that just 5 members have resigned, and all were cashed out at higher prices than their initial deposits (since they receive 100% of what a new member is paying at the time and that has increase over any rolling 24-month period).

See the problem? As an investment, new members should be paying based on Net Asset Value. The club has purchased 10 of the homes available (the rest are leases or exchanges) and it would be a shock if they haven't fallen in price -- on average -- from the initial outlay. If real estate prices soared, new members would expect initial deposit rates to escalate. Why haven't the initial deposit requirements dropped as real estate prices -- particularly for high-end vacation properties -- have taken a hit?

Existing members may be overjoyed, but new members are getting diluted -- making it that much harder for them to come out of this with a profit in 11 years.

2. Won't it get harder to get out in the future?

Right now, cashing out is pretty easy. The club has great homes, friendly management, and pose a great high-end value proposition. However, resigning won't be so easy in a few years. Let's say you want to get out in five years. Who wants to pay for a club that will liquidate in 5 years, especially if real estate prices don't recover and they are deep in the hole with their initial investment deposits?

Yes, the club isn't going to fold come 2021. It has five years to liquidate its portfolio, and members may also vote to keep the club going in a new form. That still creates uncertainty. Unless luxury vacation real estate takes off by the latter half of this decade, getting out won't be easy.

3. How messy will the cashing out process be?

As noted earlier, the club doesn't have to sell off its owned homes come November of 2021. It can elect to delay the process if the property resale climate is unfavorable.

Further compounding matters is that many of its homes are in eclectic locations. Anguilla and Costa Rica aren't exactly booming markets. I don't know if those properties are purchased or leased, but if they are among the 10 owned homes it may make the selling process hairier.

Now, these are just the three questions that I feel need to be answered with convincing responses. You may have some of your own, and obviously you're going to want to ask them if you are about to make a serious six-figure investment in a destination club.

Abercrombie & Kent to Raise Prices?

In an encouraging bright spot for the industry -- though not necessarily for prospective members -- Abercrombie & Kent is set on boosting its initial deposit requirements for membership by $10,000 to $23,000 next month.

The move still prices membership plans well below their original peak prices.

Let's hope the industry isn't repeating mistakes of its past. During the growth days of the industry, clubs routinely inched their initiation prices higher. It was a productive tactic in smoking out those straddling the fence in terms of ownership. It led to a bubble that came crashing down when the real estate market itself cratered.

The upside here is that even if this is a way to prompt interested leads into joining before the deadline, one would assume that there are enough destination club tire kickers sniffing around A&K to prompt the club to go through with the slight increase.

Ultimate Escapes is Delisted

Well, Ultimate Escapes' tenure on a major stock exchanged ended before it really had much of a chance to get started.

After failing to complete a secondary offering to meet the exchange's listing requirements the country's second largest destination club succumbed to the delisting process.

You won't find the stock under the old UEI ticker symbol anymore. It now trades on the OTC Bulleting Board as ULEI -- though you may have to punch it in as ULEI.OB on some stock quote services including Yahoo! Finance.

Where does UE go from here? The delisting is humbling. It will have to get by without the money it was planning to raise. Still, life -- and luxury vacations -- go on. The stock may have hit a new low of $1.85 today, making it that much harder to use its stock as legal tender to snap up a smaller club or possibly buy new properties, but the club lives on to fight a new day.