When Should Destination Clubs Buy Properties?

By: Destination Club News
Date: February 20, 2010

When considering a destination club's property portfolio, there are typically two trains of thought for a club when they launch. Either make an introduction with an established collection of residences already available to members or launch with just a small sampling of residences and grow the club's property collection in tandem with new membership growth. Each has their own merits and the options ultimately boil down to a circular cause and consequence dilemma. In this case, a destination club needs properties to grow in terms of members but needs members to grow in terms of properties.

For well capitalized destination clubs, particularly now with real estate values in decline, purchasing a sizeable collection of resort real estate can make attracting new members a far more simple task. With a healthy mix of beach, ski, and leisure destinations immediately available to members, the club can market to a much wider audience than clubs with just a handful of properties. On the other side of the coin, purchasing these properties requires a substantial amount of start-up capital. If new membership sales, the life blood of every young destination club, do not follow, the high costs of maintenance, taxes, HOA fees, and other associated costs will quickly burn through the club's capital.

The other perspective is growing the club's property collection in unison with new membership acquisitions. This model allows the club to limit their expenses during the critically important inaugural months as the sales and marketing begin to attract new members. Unfortunately, without a pre-established base of properties for members to immediately use, the call to action for these founding members is minimal and many may wait on the sideline until the club reaches a satisfactory number of properties.

This debate doesn't simply affect just new destination clubs either as established clubs across the industry must also walk the fine line between purchasing properties in advance of members joining or purchasing properties after members have already joined. The process of researching, purchasing, and furnishing a property is often a lengthy one, not even including the time it takes for the club to procure a local host to assist members while they travel to the residence and other time intensive projects to make the property destination club ready. If a club waits until the requisite number of members join the club before purchasing, the property likely will not be available to members until several months following. In addition, destination clubs traditionally pursue the "cream of the crop" properties in a region and as a club waits for new membership funds, the possibility of losing their selected property to another buyer exists. If they do purchase in anticipation of new membership sales, members will likely have access at an earlier date, but the refundable membership deposits of all members may be put at jeopardy.

Check back soon as we have spoken to David Rogers of Rocksure Property about his thoughts on these models and which he has employed for the growth of his leading European based club. If you are considering destination club membership, finding out how your membership deposit will be used will likely be one of your main decision criteria. If you would like to receive a list of suggested due diligence questions pertaining to joining a destination club, request a free copy of our Destination Club Guide.