Residence Clubs Rock the Vacation Industry; Ten Questions to Ask to Make Sure You Pick a Club That is Right for You

Business Wire, March 2, 2005

SEATTLE -- Residence clubs have come from nowhere to become the talk of the vacation industry. The concept is simple: similar to a traditional country club, members pay a membership deposit and annual dues to join and access the club's properties. But rather than access to a single golf course as with a country club, members of residence clubs enjoy the use of a portfolio of high-end homes in resort destinations.

As residence clubs gain popularity and approach the anticipated sales plateau of $2 billion per year, consumers will have a wider selection of product offerings to choose from. Industry leaders, Abercrombie and Kent (www.abercrombiekent.com) and Exclusive Resorts (www.exclusiveresorts.com), established the market by targeting the super-affluent, providing this elite group a portfolio of multi-million dollar homes in exciting resort destinations for a membership deposit ranging from $275,000 to over $500,000. Signature Destinations (www.signaturedestinationsclub.com) is leading the way for the mass-affluent, with a product offering designed around this market segment's travel preferences. The company's unique strategy, based on a regional model, offers its members access to a collection of homes within driving distance of their primary residence in addition to a national portfolio of homes averaging $750,000 in value for a membership deposit of $125,000.

The latest surveys of existing residence club members show a 96% satisfaction rating, and waiting lists are commonplace among the leading operators. Every club is structured a little differently, so take the time to ask the following questions to make sure you have the information you need in order to make the right decision for your family:

1. Is a residence club right for you? Residence clubs are not right for everyone. While they provide upscale service and flexible access to dozens of homes in exciting destinations, they do have their limitations. Most clubs provide up to 8 weeks of use per year, but limit the time you can stay in a single property to 2 or 3 weeks. If you see yourself as a snowbird -- summering in the north and wintering in the south -- then odds are a second home is more appropriate for you.

2. How much do you want to spend? If you decide that residence clubs fit your lifestyle, you must then decide how much to spend. All residence clubs charge a one-time, refundable membership deposit ranging from $75,000 to over $500,000 (depending on the value of the homes in the portfolio). As a general rule, a $75,000 deposit will get you access to homes around half a million dollars while a $500,000 deposit will enable you to use properties in excess of three million dollars.

3. What portion of your membership deposit is refundable? Most clubs charge a "transfer" fee of approximately 20%, meaning your membership deposit is only 80% refundable. This transfer fee is used to cover new member acquisition costs as well as a portion of the club's overhead. A few clubs offer a 100% refundable membership fee. While this is an attractive offer, make sure the company is financially secure enough to keep its promises. It may be better to get 80% of your deposit back than risk receiving 100% of nothing.

4. How do I know my deposit is secure? This is a very important question. Make sure the club you are considering keeps enough assets on hand to refund your deposit should you decide to exit the club. Exclusive Resorts, for example, promises members that they will keep 80% of their deposit (the refundable portion of a member's deposit) in either cash or hard assets. Make sure you are comfortable with the debt to asset ratio of the club you are considering joining. Industry averages range from twenty to fifty percent.

5. How available are the properties? Residence clubs promote anytime, anywhere availability. While property availability in residence clubs far surpasses that of timeshares due to a lower member-to-resident ratio (typically 6:1 in residence clubs vs. 48:1 in timeshares), the fact is that you are still sharing homes with other members. Be sure to ask how the time in the homes is allocated to (or divided between) the members. With the recent success of residence clubs, several new companies have entered the market with lower membership deposits but higher member ratios (some as high as 12:1). While this decreases the overall cost of membership, the net effect is reduced availability.

6. How does the club handle peak holiday periods? Christmas, spring break, and the 4th of July are examples of holidays in peak demand. In an effort to evenly allocate usage on such holidays, residence clubs either charge a premium or initiate a "lottery system" in an attempt to make this process fair and equitable. Find out exactly how the system works. If the club sells certain holidays times at a premium, they may limit your ability to use the property during that holiday. Also, consider the membership ratio once again as an indication of how many people are vying for reservations during these peak demand periods.