Abercrombie & Kent Residence Club Leaves Destination Club Association

By: Destination Club News
Date: May 1, 2009

Established in 2006 by a group of the leading destination clubs in the industry, the Destination Club Association's mission was to "promote the responsible growth of the industry through education to create awareness of the industry and its unique vacation offerings, through the establishment of best practices and other consumer protections, and through cooperation with the broader hospitality industry worldwide." Less than three years removed, many of the founding members of the association are no longer in existence and the association's newest member, Abercrombie & Kent Residence Club, has elected to withdraw their membership.

"After High County Club failed, we immediately met with other members of the DCA to discuss the situation," said Darin Gilson, Abercrombie & Kent Residence Club's Senior Vice President of Sales and Business Development. "It was extremely concerning that a member of the DCA could ultimately put their club members in such a difficult predicament. We felt very uncomfortable after that occurred, and when Lusso unraveled a few weeks later, we felt we had no choice but to officially withdraw from the Destination Club Association."

As mentioned by Gilson, High Country Club and the Lusso Collection, both founding members of the Destination Club Association, have been forced into bankruptcy. The Solstice Collection's Chapter 11 Bankruptcy filing makes them the third leading member of the DCA to reach bankruptcy in the past months.

The Destination Club Association created a Code of Conducts that was adopted in early August of 2007. The Code proposed many new changes not previously used by most of the clubs in the industry, including positive introductions such as member rescission rights that allowed destination club members the opportunity to cancel their membership within seven days after joining and required disclosure from clubs about membership specifics including owned versus leased properties. The flagship creation of the DCA revolved around the Net Asset Test, an annual statement by each club's financial team that would indicate that the club had assets that covered 66.66% of the club's aggregate amount payable to members upon termination. Theoretically, the DCA believed that if a club could demonstrate assets equaling or greater than 66.66% of the total amount of refundable membership deposits owed to members, the club would be able to repay the majority of the club's debts owed to members if the club faltered.

Unfortunately, the DCA does not have the oversight powers to confirm that clubs continually meet the compliance standards set forth by the association. When real estate prices began to drop, clubs quickly fell out of compliance with little recourse for the DCA. In a letter to members on July 11, 2007, High Country Club let members know that their annual audit by BKD, LLC had been completed and confirmed that their cash, marketable securities, and real estate assets were in excess to their real estate debts and refundable membership deposits as outlined by the DCA net asset test. Less than two years later, the club no longer exists and members have not received any of their membership deposit as equity in the homes evaporated.

"We didn't make big fanfare when we officially withdrew because we didn't want to hurt the DCA, but we didn't want to be affiliated with it anymore," continued Gilson. "Clearly, it didn't have the necessary authority to audit and confirm that its members were adhering to the best practices. I don't believe the clubs intended to do anything wrong, but the market environment eroded their equity values so significantly that they fell out of compliance with the net asset test, and the DCA had no knowledge or authority to help protect members of those clubs."

No longer a member of the Destination Club Association, Abercrombie & Kent Residence Club will rely on their equity model and strict governance policies to provide the appropriate member protections behind their club.

"We have gone to great lengths to have what we believe is the most protective model in the industry. We wanted to be a member of the DCA because it seemingly was the body that was trying to promote best practices, but our club's equity model, where members own a diversified portfolio of debt-free properties, is clearly the most protective."

While the A&K team doesn't believe the Destination Club Association is the best answer now, they remain interested in promoting best practices across the industry, as shown by their first annual member's meeting.

"We are interested in being good industry participants and promoting best practices, but we don't believe that the Destination Club Association has the construct to do that any further," Gilson continued. "The destination club product is fantastic, and is enjoyed and loved by many. The concept of wonderful homes in a wide variety of destinations, and with great services to provide hassle-free vacations, that is what works. What doesn't work, unfortunately, are certain business structures behind some of these clubs. The days of booming real estate appreciation and easy membership acquisition are over. When that is not the case, as it is now and potentially for the foreseeable future, it takes a different business model. If you can match a great business model with a great concept, it can be phenomenal. We believe that we have those two things but many of the players in the industry have one but not the other. We want to promote the industry and the product and the way to run the business behind it."

Despite the fact the Destination Club Association created several positives changes for member clubs, including the member rescission period, mandatory disclosure items, and required annual audits, the organization's inability to vouch for each club remains one of the major hurdles. The recent Ritz-Carlton Destination Club launch and The Markers Club relaunch has many calling this model evolution a change to a "Destination Clubs 2.0" model. With clubs looking to become more financially responsible throughout the industry, maybe we will soon see "Destination Club Association 2.0" as the organization looks to create more stringent standards to support the consumer protection and responsible growth platforms their mission statement is founded on.