Why are thousands of millionaires queueing up for the right to plunk down as much as $459,000, plus annual dues of up to $35,000, just for a few weeks of access to vacation homes?
The answers might be found in the 6,000-square-foot villas in Tuscany with infinity pools overlooking the countryside, the Miami Beach oceanfront condos with balconies overlooking the Atlantic and Intracoastal Waterway, and the private chefs whipping up gourmet dinners.
Exclusive Resorts, a venture led by AOL co-founder Steve Case, is the largest player in a growing segment of the travel industry that a few years ago was essentially nonexistent — the luxury destination club.
The clubs have not been without problems: The first, Tanner and Haley, filed for bankruptcy last year, leaving hundreds of members fighting in bankruptcy court to try to reclaim some portion of their membership deposits.
Despite the recent tumult, Denver-based Exclusive Resorts has grown 50 percent in the last 12 months, from 2,000 to 3,000 members, said company Chairman Donn Davis, a longtime associate of Case from their days at AOL. The club has a waiting list of more than 100.
"Our members are some of the wealthiest, most discerning consumers out there," Davis said. "They've done their homework on us" and decided the investment is worth it, he said.
Pricey initiation fee
It works like this: A member pays an initiation fee of several hundred thousand dollars, plus annual dues in a range of $15,000 to $35,000 a year. In return, the member gets access to the club's roster of more than 300 properties in 34 destinations around the world.
At Exclusive Resorts, a deposit of $239,000 plus annual dues of $14,000 gets you 15 vacation days. A $459,000 deposit plus annual dues of $35,000 gets you 45 days. Members who quit the club are refunded 80 percent of their initiation fee.
Case's company operates with a different business model than that of the defunct Tanner and Haley. While Tanner and Haley leased properties, Exclusive Resorts owns the majority of its homes, which it says gives the company sufficient assets to back members' deposits.
In addition, Exclusive Resorts members never own a piece of the properties, as they would in the vacation time-share model. Instead, they are buying into what more closely resembles a country club, Davis said.
Jan de Roos, a tourism and real estate professor at Cornell University's School of Hotel management, said the comparison is valid.
"I like the business model," de Roos said. "You don't own the real estate. You own the right to use the company's real estate. Trust is a huge piece of how the business model works ... and I think people trust Steve Case."
Davis said the club's biggest challenge is managing peak demand, particularly among its ski properties. The sales team is upfront about the club's limitations.
"If you say 'I want to go to Vail for Christmas every year,' we tell you that's not how it works," Davis said.
To pull demand away from peak times, Exclusive Resorts offers similar properties — such as Deer Valley, Utah — and works hard at offering unique vacation opportunities throughout the year. In the offseason, it offers popular family cooking classes with personal chefs in Tuscany. The club also has a rotating menu of "once-in-a-lifetime" options, like members-only Mediterranean cruises or tours of Buddhist monasteries in Bhutan.
Partnerships with five-star resorts
The club is expanding its offerings by establishing partnerships with five-star resorts, in which Exclusive Resorts builds its own luxury housing next to a high-end resort hotel. These arrangements give members access to the resort's spas and other amenities.
At Sea Island, Ga., Exclusive Resorts is currently building 24 homes next to The Cloister, a historic resort. On a recent trip, Davis looked over blueprints for the location — now just a dusty construction site — while discussing plans to seamlessly blend the homes in with the existing resort by emulating the Spanish Mediterranean architecture.
"Each home is going to look like a little mini Cloister," Davis said.
Catherine Klein, a spokeswoman for Sea Island Resorts, said the partnership makes sense because it brings in a new set of wealthy travelers who otherwise might never have set foot on Sea Island.
"It's a way to bring in their members and expose them to The Cloister," she said.
Every Exclusive Resorts home is outfitted with the same home-entertainment systems and the same remote control, so members always know how it works. The homes' architectural features are tweaked to fit with local flavor. And resort locations are almost always four-bedroom homes with open floor plans to facilitate large family gatherings.
Dale Sorensen, 67, of Vero Beach, Fla., joined the club two years ago and said it is ideal for people who like to travel with extended families and travel to new places.
"Virtually all of the destinations, except the ones in the big cities, are four- and five-bedroom homes, which makes for a nice family vacation," said Sorensen, who owns his own real estate business and looked closely at the club's financial statements before joining.
He said travel at peak times like Christmas can require some advance planning, but since he owns his own business he has more flexibility in when he travels. The dues, he said, are a relative bargain compared to what he had been spending on vacation home rentals or multiple rooms at luxury hotels.
Jamie Cheng, editor of the Helium Report, which provides research and analysis on destination clubs and other luxury products, said the bankruptcy of industry player Tanner and Haley does not appear to have slowed the luxury travel-club business. But he said consumers are asking thorough questions and doing research before choosing a club.
"People are looking for the clubs that are fiscally responsible," he said.
Millions of millionaires
Many of Tanner and Haley's old customers are now members of Ultimate Resort, the second largest destination club, said Ultimate Resort CEO Jim Tousignant. Ultimate Resort, based in Orlando, Fla., purchased Tanner and Haley's real estate portfolio in bankruptcy, and allowed members to join Ultimate Resort without paying a membership deposit.
Tousignant said the majority of former Tanner and Haley customers are now dues-paying Ultimate Resort members, including many who have upgraded their memberships. Last month, Ultimate Resort announced plans to merge with another club, Private Escapes, giving the combined entity 1,200 members.
Both Exclusive Resorts and Ultimate Resorts say the opportunities for growth are tremendous. Three million Americans are worth $5 million or more, the target demographic for Exclusive Resorts. And with 10 million Americans worth more than $2 million, Davis said he can envision a scaled-down version of the club that would cater to that demographic.
For now, Exclusive Resorts focuses near the high end, while Ultimate Resort offers a variety of options. The average home in Exclusive Resorts' portfolio is worth about $3 million, compared to the $1 million or $2 million homes that might be offered by lower-end clubs.
"I really think this concept will change the way we take vacations," said Davis.