The Benefits and Risks of Joining a New Destination Club
By: Destination Club News
Date: October 13, 2008
While the turbulent financial markets coupled with the non-launch of Diamante Residences and Vita Luxury's cancellation may keep some more perceptive and risk-averse members from joining a start-up destination club, there are also some strong reasons to consider doing so right now, as well. Here are some of the points to consider on both sides of the coin:
Superior Founding Member Benefits
All of the leading destination clubs started small at one point, and founding member benefits can be staggeringly compelling. Currently, founding members of the Botiga Destination Club, operating in Europe, receive two years of waived membership dues. Abercrombie & Kent Residence Club founding member benefits include additional time for family usage and expanded use of the clubís tours and other adventure travel. Typically, initial membership deposits and fees are much less, and may, in the case of Lusso Collectionís founding membership offers, include upside when members exit from the firm.
Lower Capital Access and Greater Financial Risk
On the other hand, new firms represent greater financial risk, as their business models are unproven and access to equity capital may be lower as well. Just ask members of the Portofino Destination Club, which filed for bankruptcy in 2008. The membership deposits of both new and existing destination clubs are ultimately backed by the clubís real estate holdings.Portofinoís leasing strategy, as well as their inability to attract outside capital, led the firmís executives to re-leverage the companyís owned assets. When Portofino filed for bankruptcy, the company had no assets remaining.
Greater Influence on Club Development
One of the attractive benefits to joining a newer destination club is that, as a founding member, your opinions will necessarily translate into action much more quickly than at larger, more established firms. Young clubs are always looking for member feedback to shape everything from destination selections to usage policies. Many clubs offer roles on their Board of Advisors where you can directly interact with club executives to help shape the club moving forwards.
As a founding member, expect to find some of the membership policies to be a bit incomplete. With much, if not all, of the clubís staff and executives new to the destination club industry, some policies such as reservation windows and advanced bookings may not be complete until the club can accurately gauge availability and usage patterns. As a founding member, you may see rule and policy changes as the club begins to better understand their membersí needs and travel patterns.
At smaller firms, itís much easier to reach the decision-makers. Expect to have ready access to the CEO, Financial Officers, and other executives. In fact, smaller destination clubs may be comprised of few employees beyond these key officials. Staffing costs are one of the highest expenditures for destination clubs, and as new clubs begin to establish themselves in the industry, most clubs will exist solely with these employees until they see faster growth.
One of the downsides of joining a younger destination club is the relatively lower number of homes available for travel. While it is important to consider how many properties you will actually travel to in your first year of membership (most members would do well to get to 5-6 different locations each year), at least 3-4 of those locations should have keen appeal for you.
While you will have fewer destinations to choose from as a founding member, you will also have fewer members competing for those residences. Many clubs launch with a robust selection of luxury vacation homes, dramatically beyond their published member to property ratio. Depending on your clubís growth, you will probably see at least one year of near-limitless access to the clubís portfolio of homes as the club seeks new members.
Members of new destination clubs often act as investors in both the club and/or the clubís real estate. If you believe in the clubís business model, real estate, and forecasted growth rate, investing in a destination club can be a wise decision. One of the most crucial components of a new destination club is their capitalization. As firms seek to acquire capital for new homes and to cover ongoing expenses during their introductory phase, some may reach out to members rather than higher interest and more difficult to find equity capital.
Industry giants like Exclusive Resorts and Ultimate Escapes were once at the same point that Botiga, Grand Resort Properties, or Moncasa Caribbean Experience are now. Through sound operating policies, savvy real estate purchases, and a satisfied referral-generating membership base, these clubs have established themselves as power players in the industry.
If you believe in the club and its business model, joining an emerging destination club can allow you to capitalize on founding membership benefits and enjoy unforgettable luxury vacations for the life of your membership. If you are concerned about the clubís sustainability and would rather trade potentially stronger benefits for security of your membership deposit, watching and waiting is probably the best decision.