Members only: high-end vacation clubs transform time-share model

Chief Executive, The, April, 2004 by Paul Rogers

For years, when Dale Anderson and his wife, Kim, needed an escape during the colder months in Canton, Ohio, they stole away to their vacation house in Hilton Head Island, S.C. But idyllic as their Low Country retreat was, with its ocean views and salty air, the couple eventually tired of it. "We just wanted to go to different places," says Anderson, 63, the founder and owner of D. Anderson Corp., a privately held oil and gas exploration and production company.

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So, nearly two years ago, the Andersons sold their second home and resolved to travel to as many exotic locales as they could. Since then, they have managed to visit quite a few, in some cases traveling on their own, in others with family or a group of friends. They've been to Los Cabos and Huatluco, Mexico; Great Exuma Island in the Bahamas; and numerous South American cities and ports while taking a cruise along the coast of Chile and Peru.

To plan each of those trips by themselves, from renting a car to making restaurant reservations and tee times for golf, would have taken hours of legwork. But as members of Exclusive Resorts, one of several private vacation clubs formed within the past five years, the couple had virtually all of the planning done for them. "It's extremely hassle-free travel," Anderson says.

One of the latest trends in the high-end travel industry, vacation clubs offer their members access to private residences at some of the world's finest resorts, as well as suites in landmark urban hotels and apartments aboard luxury cruise ships.

In some ways, it is an extravagant version of a time-share. For the privilege of visiting their choice of properties for between 30 and 60 days a year, members generally pay a one-time deposit, or purchase price, of roughly $300,000 plus annual maintenance, or dues, of $12,000 to $18,000. Some of the clubs, such as the Four Seasons Residence Club and the Ritz-Carlton Club, are equity associations in which members purchase a deeded fractional share of a residence. Exclusive Resorts is nonequity-based; its members buy usage, as in a country club, and are refunded 80 percent of their deposit if they choose to resign.

Despite being on the market for only a limited time, the vacations clubs are catching on, says Howard Nusbaum, president of the American Resort Development Association. For example, Denver-based Exclusive Resorts, which does not belong to the industry association, began in January 2003; today it has 450 members and a sizable waiting list, its owners say.

The concept behind the clubs' success is relatively simple. Their combination of flexibility, privacy and five-star amenities--such as masseuses and private chefs--seems to carry strong appeal among the affluent today. Instead of buying a lavish second home, which requires an enormous investment and regular upkeep (including the rituals of opening and closing the place for the season), many people are choosing to be more footloose, Nusbaum says.

"I call it the 'rational rich,'" he says. "It's the idea that instead of spending $3 million, maybe I'll spend $300,000 and I'll use it the six weeks a year I'm going to use it and the refrigerator is stocked and I get picked up at the airport and the ski tickets are waiting for me."

Exclusive Resorts has one of the largest portfolios of properties. The club offers two- to four-bedroom villas and apartments in 17 locations around the globe--from Wailea, Hawaii, to Snowmass, Colo., to London and Paris--and on a luxury cruise ship, The World of ResidenSea. An additional 10 properties are either under construction or being planned.

Borrowing from the business model of NetJets, the fractional jet ownership company, Exclusive Resorts guarantees reservations to members who book at least 90 days in advance. Shorter-notice bookings are first-come, first-serve.

Two of the company's three founders, brothers Brad and Brent Handler, say they came up with the idea while vacationing in Hawaii with their wives, four young children, parents and a nanny. Despite renting the nicest suite at a first-class resort, they found the accommodations lacking for all their needs. There was no kitchen, for example, and only a mini-refrigerator. What the family really needed, says Brad Handler, Exclusive Resorts' CEO, was the space and amenities of a private home. Other similarly affluent people, they decided, must have the same needs.

"What we do is help people spend the most precious resource they have, which is time," says Brad Handler, a former in-house counsel for eBay.

One of the key challenges for private vacation clubs, experts say, is that they are competing for an extremely thin slice of the travel market. As few as 1 percent of all households in America can afford initiation fees and annual dues, says Nusbaum. What's more, such affluent people are notoriously discerning and might get tired of going to the same resorts year after year.

So far, that's hardly a concern for Buck Blessing, one of the original members of Exclusive Resorts. The founder of a real estate investment company in Colorado Springs, Blessing, 40, has used his membership to go snorkeling and sea kayaking with his two daughters in Cabo San Lucas and golfing and mountain biking with a group of eight friends in Scottsdale, Ariz. He has also stayed in an Exclusive Resorts property while on business, the Huntington Hotel in San Francisco's Nob Hill.