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What is the business model?
The business model for destination club is most analogous to a non-equity country club. Members enjoy the best of all luxury travel options without the headaches of owning and operating second homes in several locations. Developers benefit from the appreciation of home values and the non-refundable portion of deposits.
The term “fractional ownership” is often misused in describing these private destination clubs. In general, members have access to a broad range of benefits, but do not own an equity stake in the real estate or value of the club. The majority of destination clubs, much like country clubs, are not investment vehicles.
A few mention a potential return on the deposit when a member leaves the club, but leaving a club can be difficult if a club is not growing. Most clubs we researched have a “three in, one out” policy, where three new members must join before an existing one can get a refund.
Destination clubs are careful with their positioning to avoid risk of scrutiny under timeshare regulations. Some have created two separate entities to avoid mixing the two ventures – a membership club and an independent real estate investment arm accessible only to accredited investors.
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