2006: Homes away from home
Thursday, August 4, 2011
“They’re like our extended family,” he says.
Nearby is a wine refrigerator housing columns of members’ bottles, ready to be pulled out when they return to The Rocks, about a half-hour drive from Phoenix Sky Harbor International Airport. The members have privileges at eight nearby golf courses, and across North Alma School Parkway they can go horseback riding on Sonoran Desert terrain that used to serve as the set for movies starring John Wayne and Glen Campbell. After sunset, they can take Hummer tours of the desert, using night-vision glasses to view the abundant wildlife.
None of the members live at The Rocks full time, nor do they own property in the community. They’re members of relatively new, hybrid vacation services commonly referred to as destination clubs or residence clubs. These clubs, which command six-figure initiation fees and five-figure annual dues, offer the affluent another option to owning second homes or staying at upscale hotels. The big selling point: members typically can choose from a menu of vacation destinations that are on everyone’s must-visit list.
“It solves the problem of people wanting to go on vacation with groups of people,” says Todd Harris, a former Ritz Carlton executive who is Exclusive Resort’s senior vice president of member services. “The luxury hotels don’t really work for that.”
At The Rocks, 23 of the 40 residences are owned by Exclusive Resorts, the largest destination club with about 1,900 members and 300 homes in the United States, Mexico, the Caribbean and Europe.
Golfers, often flush with disposable income, are prime marks for Exclusive Resorts and its competitors, and that’s a key reason why golf-rich Scottsdale is one of the most popular domestic destinations for these clubs.
Rob McGrath, chief executive of Tanner & Haley Resorts, generally is regarded as the industry’s pioneer, having founded the company as Private Retreats in 1998. (The company now bears the names of his children, though Private Retreats lives on as a Tanner & Haley sub-brand.)
In the 1990s, McGrath initially promoted the idea of fractional real estate – in essence, high-end timeshares.
But he found members didn’t want to be tied to one location, often wanted to use the same properties at the same times and had concerns about the ability to sell their memberships if they wanted out.
So he changed his business model. If there’s a time conflict for a property, Tanner & Haley will rent a comparable home for its members. About 13 percent of the company’s room-nights are rentals, which is why it tends to be the most expensive club, with membership deposits running from $250,000 to $1.5 million for its various clubs.
In return, members get what Mark Cain, the company’s senior managing director, calls “a portable nest” – a consistent, stress-free experience in every home.
It can be quite a nest. Sitting on the spacious balcony of a four-bedroom, $3 million-plus home overlooking the 16th green at FireRock Country Club in Fountain Hills, Ariz., Robert Dorsey, who manages Tanner & Haley’s Scottsdale properties, ticks off the services his staff delivers.
Like other destination clubs, Tanner & Haley employs concierges who: arrange for members to be picked up at the airport so they don’t have to wait for a rental car; buy members’ groceries before they arrive; make golf and dinner reservations; arrange for in-home massages and chefs, two of the most popular premiums; and generally make every member’s whim or wish a reality.
To maintain consistency, each Tanner & Haley home has the same 144-piece glassware set and 12-piece china setting.
Dorsey says he’ll sometimes even Google members prior to their visits to find family pictures that he can place around the home.
Despite all that, consumers often, if mistakenly, associate destination clubs with timeshares – vacation products that can be purchased for low five-figure investments. For destination-club executives, with their concierges and service mantras, these are fighting words.
“We face that at the outset of every focus group (on destination clubs). People say, ‘Isn’t this just
a timeshare?’ ” says Dick Ragatz, whose firm, Ragatz Associates, is regarded as a leading authority on these sorts of vacation products.
Ragatz says private residence clubs or businesses selling fractional ownerships are growing faster than destination clubs, in part because they offer a deed and share of a home. He says sales for those types of vacation products totaled about $1.5 billion in 2005, and the total number of owners is about 50,000.
“We keep finding that regardless of the income, an awful lot of people are influenced by a deed more than they are a simple membership,” Ragatz says.
For that reason, Peter Brown, a founder and owner of Private Quarters Club, structured his business as a residence club, in which members are deeded fractional ownership.
“I felt that actual ownership of the property was important,” Brown says.
Brown helped launch Private Quarters to drive more business to Porto Cima, a private, Jack Nicklaus design he owns at the Lake of the Ozarks resort in Missouri. Private Quarters has 16 houses at the property – four more are under construction – and charges members $65,000 for three weeks of flex-time ownership annually, which equates to 17 members per unit. He says the strategy generates revenues per unit that are five times greater than traditional home sales.
That led Private Quarters to expand, adding homes at Geneva National Golf Club in Wisconsin and Amelia National Golf Club in northeast Florida, with memberships peaking at $170,000. Membership exceeds 200, Brown says.
Ragatz sees no evidence that destination clubs will become more popular than second homes. But some destination-club members say there’s a downside to the traditional vacation homes.
“The whole second house thing is just too much of a hassle if you’re not going to use it six months a year, between the insurance, the furnishings, the upkeep,” says Al Sica, a member of a year-old start-up.
Ross Jardine, a member of another start-up called The Markers Club, owns a second home in Park City, Utah. But he says that when he gets together with friends, “every one of us are (griping) about our second homes” if they use them less than half the year.
While Jardine plans to keep his second home, he expects to visit Markers properties four to six times per year.
“This is just a fabulous solution,” he says. “It’s a fraction of the money, and I’m staying in homes as nice as mine.”
Steve Juskewycz, chairman of Golf Links to the Past, a memorabilia company, says he considered building a second home on land he bought five years ago, but “I almost felt psychologically I’d have to go there.”
He has used Exclusive Resorts properties for golf vacations in Scottsdale, Hawaii and Los Cabos, and he also has stayed in the company’s 3,100-square-foot Trump Tower apartment during business trips to New York.
Industry executives see a huge upside as affluent consumers become more aware of these clubs and their benefits when compared with owning second homes or planning traditional vacations.
In an August 2005 study of the market for vacation homes, the American Affluence Research Center painted a picture of the potential market that destination clubs hope to capture.
It reported that there are 11 million households that make up the wealthiest 10 percent of U.S. households. They have an average net worth of $2.7 million, and a minimum net worth of $750,000. Their average incomes are $270,000 and they account for 40 percent of all income earned by Americans.
Given those numbers, Ron Kurtz, senior partner at AARC, says, “I’m actually a little surprised (destination clubs haven’t) grown faster because they do have some good fundamental appeals.”
Assuming 5,000 members and average initiation fees of $200,000, total destination-club sales likely already approach $1 billion. The fact that AOL co-founder Steve Case is majority owner of Exclusive Resorts is trumpeted as validation of the business model.
“It’s a macro-demographic thing that has to do with the fact that baby boomers in particular, and really the entire country, are beginning to move toward activities that are more experiential,” McGrath says.
Jim Tousignant, chief executive of Ultimate Resort, talks excitedly “about a business that is going from 5,000 (members) to 500,000 in the next seven to 10 years. Even if I’m off by a factor – say it only goes up to 100,000 – that’s still tremendous growth.” He predicts “hundreds of clubs” will enter the category, marketing specialized niche vacation properties – for instance, for golfers, anglers or skiers.
The Markers focuses exclusively on one niche: golf.
“We want 325 like-minded golf fanatics, and then we’re done,” says Markers co-founder Mitch Brinton, sitting outside his company’s four-bedroom home at The Rocks. “If a guy says, ‘Well, I want to ski, too,’
we’ll say, ‘OK, go join that other club.’ ”
Brinton, an entrepreneur who says he has never written a résumé, says he hit upon the idea for a golf-focused destination club two years ago while vacationing with his future wife and in-laws in Puerto Vallarta, Mexico. He launched the business with Ron Wade, a high school friend.
The Markers just completed construction on its fourth property in St. George, in the arid, southwest corner of Utah where the company is based, and expects to double that number in the next couple of months.
Brinton says he initially wants to have one home for every six members, with the long-term business plan calling for 36 properties, or roughly a 9-to-1 ratio.
When members join the club, they are custom-fit with new Ping equipment. Brinton also talks of tournaments for members, and he has scheduled a members excursion to the U.S. Open at Winged Foot in June, hosted by Billy Casper, who is a Markers member.
“We’re focused,” says Brinton, “on how we can create memorable golf experiences.”