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Global Destination Clubs

Groucho Marx once said, "I don’t care to belong to any club that will have me as a member." Frankly, I’m with Groucho—with a possible exception for destination clubs. After a freak accident trashed my family’s weekend home, resulting in frustrating battles with an AWOL contractor and a recalcitrant insurance adjuster, I started to flirt idly with the idea of dumping my bricks and mortar for the latest carefree-vacation real-estate concept.

The first destination club was launched in 1998, when Connecticut-based Private Retreats, subsequently renamed Tanner & Haley, enticed affluent buyers with the promise of multimillion-dollar houses in settings from Cabo to Cannes. Instead of owning a single property, members would share a portfolio of residences; in addition to a hefty one-time fee (generally refundable, at least in part, if a member leaves), there would be annual dues to cover upkeep, mortgages, homeowners’ association charges, housekeeping, and concierge services.

The concept’s originators speculated that investors would be willing to pay $200,000 or more for membership—far less than the cost of one luxury dwelling—even though their investment wouldn’t give them the equity stake they’d get with a fractional or condominium. They were right: The idea took off like a house on fire and continues to gather steam as more clubs enter the market. Some of these have aligned themselves with established travel brands like Abercrombie & Kent (Tanner & Haley) and Andrew Harper’s Hideaway Report (Parallel); there are also niche clubs that focus on golf, yachting, and fly-fishing. As competition has grown stiffer, other perks, such as alliances with private-jet companies, have been added.

Too good to be true?Maybe: last year, the destination-club industry suffered a series of highly publicized rollups and the bankruptcy of what was then the second-largest club. (Tanner & Haley filed for Chapter 11 protection in July 2006, and the group’s assets were purchased by another club, Ultimate Resort.)

So is the destination club really a viable alternative to second-home ownership?To find out, I’ve decided to play "prospective member," and contact four top outfits.

"It’s like joining a private country club," says David Tuverson, a membership director at Quintess (800/550-0324; www.quintess.com), the first of my undercover calls. This burgeoning destination club merged with Dream Catcher Retreats last September and just announced another partnership, with the Leading Residences of the World, an affiliate of the Leading Hotels of the World. Quintess, with 49 properties in 26 locales, has about 300 members and intends to cap ranks at one thousand. Quintess and Leading Residences also plan to develop ventures at Leading Hotels properties. (Imagine, someday, a condo apartment at Paris’s Hôtel de Crillon.) Tuverson tells me that the average Quintess house measures 4,000 square feet and is valued at around $4 million. He is quick to assure me of financial transparency and, as long as I agree to sign a nondisclosure statement, will make available the company’s balance sheet. Even so, I’ll be forking over $185,000 for basic membership, plus $14,500 in annual dues for the right to use properties for up to 15 days each year. Plus, it will be impossible to obtain mortgage financing.

My next question regards the shifting policy on a money-back guarantee. First- generation destination clubs offered a full refund to resigning members—one of the factors in Tanner & Haley’s collapse. Since then, the "get out" clause has come under serious scrutiny and most destination clubs now pledge actual assets (i.e., fully owned real estate) against debt obligations or possible liquidation. Presently, top clubs offer an 80 to 90 percent refund and are placing additional restrictions on the timing of departure. (Beware the "three in, one out" clause, stipulating that before a resigning member receives a refund, three new members must join.)

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