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Destination club the Lusso Collection filed for Chapter 11 bankruptcy today in the U.S. Bankruptcy Court for the District of Minnesota. The boutique destination club, which has more than 150 members and homes in 16 locations, will operate through the reorganization, and members will still be able to book stays at the club properties.
“The current national financial crisis has resulted in a precipitous drop in new member enrollments and a significant contraction in the availability of debt financing, which has affected the club’s ability to acquire new properties and service existing obligations,” the company said in a statement.
The move by Lusso Collection is just the latest sign of how the economy is impacting destination clubs. This fall, High Country Club announced a plan to reorganize its membership and raise dues. Even the largest destination club, Exclusive Resorts, has been impacted by the economy—this fall, the club laid off 10% of its workforce in order to trim costs.
Tough economic times undoubtedly lead to challenges for destination clubs. Clubs are facing resignation requests from members while also seeing less success in attracting new members or external financing. The silver lining for a well-financed club during an economic downturn is that it can purchase luxury real estate at very attractive prices. Large destination clubs often get deals from developers seeking to sell multiple units to a single club, but now the incentives are even better. For consumers, a destination club is still, in many cases, a cheaper alternative to buying a second home, especially when real estate prices are stagnant or falling, making home ownership less appealing. But before investing in a club, consumers should be sure to ask about the club’s financial stability and member resignations, among other due diligence issues.
Reader Feedback
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From: DC WatcherSunday, December, 07, 2008 at 09:51 AM
There is a reason that AK's model is so different than any other DC. There are a few stable DCs out there, but many more that aren't.
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From: Quintess MemberMonday, December, 08, 2008 at 03:42 PM
I am a member with Quintess and I am concerned that they are next. They have had huge layoffs and they have walked on many of their contracts to purchase new property. I actually heard that they were in discussions with Lusso..... Maybe they are next?
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From: Former Private Retreats MemberMonday, December, 08, 2008 at 04:19 PM
As a former Private Retreats member I only know too well the ups and downs of the business. Fortunately I got out before the #$%@ hit the fan. No model is stable if members stop paying their dues. Agree with impacted traveler that management needs to take the lead.
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From: Yellowstone Club MemberTuesday, December, 09, 2008 at 12:19 AM
The Market is turning south and quick. Yellowstone Club is trying to be purchased cheap by a boston fund who refuses to go away because of his ego. Does anyone know how Discovery Land co is doing these days? I heard they are managing the bankrupt Yellowstone Club. Finally, given all the owners of these clubs took money and run leaving the members in the toilet, is there any club who is honest out there? AK started well but has no money and really has nothing new to offer.
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From: Vacation Yacht Club MemberTuesday, December, 09, 2008 at 04:33 AM
Vacation Yacht Club is a relatively new Company in this mix. They offer a variety of 6 week memberships based on yacht "right to use". They are in contract review with The Registry Collection in order trade yacht time into their program. This give its members access not only to their yachts but also approx. 100 properties world wide. Not to mention the services that the Registry Collection provides. All without the massive overhaed that the destination clubs carry. I in it because I feel its more stable. The Registry Collection removes the burden of the properties from the club.
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From: DC GuyTuesday, December, 09, 2008 at 04:48 AM
Not true about AK. They actually have a good amount of cash and are trying to buy at least one or two clubs.
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From: Another Quintess MemberTuesday, December, 09, 2008 at 10:53 AM
Am very concerned with what Quintess is attempting to do with the current members. Are trying to "cram down" current members by raising dues precipitously (in my case more than 50%). Need to go to their investors to make up any current shortfalls.(I don't have any equity in the firm) Also would like to see Quintess have an open,interactive forum with the membership. The company is a "Club" in name only!
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From: DC ForumsTuesday, December, 09, 2008 at 11:58 AM
For an interactive forum to discuss these issues, go to www.destinationclubforums.com
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From: A Quintess SpokespersonTuesday, December, 09, 2008 at 02:28 PM
Quintess' management team has been working with our members individually, in small groups and through conference calls as well as with its investors to ensure long-term stability and growth. Quintess is encouraged by the continued confidence shown by its investors, who in addition to committing $210 million in equity in April 2008, are prepared to substantially increase their commitments for 2009. The Club has already planned appropriate reductions to our 2009 operating expenses, and has asked members to approve some changes to the membership plan to reflect current market conditions. Quintess remains committed to its members, to continuing to provide an exceptional experience for them and to the success of the club. Management expects that when the economy recovers, Quintess will emerge as the clear choice in the high-end destination club category
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From: DC ObserverTuesday, December, 09, 2008 at 05:56 PM
In a market like we are experiencing conservative plans always shine, AK and their equity model is built to weather this storm. I hope the struggling clubs are amenable to talking to AK as I know they are ready to expand through further acquisitions.
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From: Quintess MemberTuesday, December, 09, 2008 at 09:39 PM
I'm also a very unhappy Quintess member with the proposed changes that are getting forced on the members. The postion of Quintess is accept the changes or else loose your deposit.
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From: Quintess MemberWednesday, December, 10, 2008 at 09:47 AM
When I joined, I expected the Company to honor my contract with respect to my dues structure and availability of homes. Now I'm being told that the Company would like to increase my dues tremendously while cutting back substantially on home availability. All in a market where over the next couple of years we will be in a deflationary environment. Does this make sense? I agree the investors in the Company need to make up any shortfalls. To threaten us with losing our deposits if we don't follow their suggestions is, at best, bullying. The Company needs to change its tactics fast or face the fact that they have made their last sale to a prospective member. When times are tough,how someone acts tells you oceans about their character.
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From: Another Q memberWednesday, December, 10, 2008 at 05:11 PM
When you joined very early in a DC and pay low dues, you took the risk that the club might not reach a certain size to be sustainable. All DC now face very low new memberships, so they have to raise dues for all members. This hurts for very early members, but fact is your dues were too low for what you were getting. And no club currently offers a better deal because they simply can't or they will go bankrupt like Lusso. The dues adjustment is hard, but fair and necessary in today's world. You should actually happy that Q doesn't simply go under like others...
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From: Quintess MemberThursday, December, 11, 2008 at 08:12 AM
Would probably prefer that Quintess liquidate. With over 10% of the members on the resignation list and the likelihood of few, if any, new members being signed up next year, I am more likely to get my deposit back through a dissolution or a merger than by their current contemplated course of action. If the investors in this Company have faith in the business model, they should step up and provide bridge funding. I am in a superior position in recovering my money and if these properties are all under water from a leverage standpoint, perhaps I can pick up some of these properties for pennies on the dollar from the banks.
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From: VYC MemberThursday, December, 11, 2008 at 09:45 AM
My heart breaks seeing DC industry struggling. Done right, this whole concept is the future of luxury travel and vacations. I read a previous comment about Vacation Yacht Club. My money is on them. VYC has a much less complicated business model that favors the member.
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From: VYC CommentThursday, December, 11, 2008 at 12:17 PM
Not sure that putting money into a depreciating asset like a yacht makes a lot of sense. The maintenance costs alone are pretty outrageous on yachts.
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From: VYC MemberThursday, December, 11, 2008 at 12:53 PM
You can't get anymore "depreciating" then chapter 11. The maintenance costs of thier 62' sailing catamarans is less than the yearly property tax of any of the 3M dollar homes in any DC.
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From: Someone Shout Out?Saturday, December, 13, 2008 at 03:21 PM
What exactly are they doing to their members? Why all the ambiguity? If it is a 50% dues increase-someone please say so.
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From: Quintess MemberSunday, December, 14, 2008 at 08:30 AM
Proposing to increase dues to $950 per night on your plan. In addition, a $275 per night usage fee. In my case, substantially more than a 50% increase. All this in a deflationary environment where resort housing will be given away over the next couple of years.
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From: So What's Going On?Thursday, December, 18, 2008 at 05:32 AM
Any resolution to the Quintess saga? www.destinationclubforums.com has some info. on this and Lusso, but it's been quiet recently on Quintess. So when does Halogen report on the elephant in the room?
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From: Quintess MemberThursday, December, 18, 2008 at 12:48 PM
The vote has been tabulated. Supposedly, 88% of the membership has voted to have their dues increased, in some cases by almost double and 88% have voted to have people on the resignation list be made to pay their dues while they wait to get some amount of their deposit back.(find this facinating as almost 10% of the members are on the resignation list) Could it be that these figures are cooked? (how can this be verified?)Perhaps they picked out such a huge majority in order to not cast doubt? Is it fair that a number of people voting are either management or equity investors in the Club? I love the new structure in that if you have resigned and don't pay your dues, you can't exit and forfeit half your deposit. Have a feeling there will be some sort of class action suit forthcoming, at a minimum to have transparency on what is going on. Bernie Madoff, anyone?
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From: DC ObserverSaturday, December, 20, 2008 at 04:59 AM
Halogen - Would love to see some reporting on the news with both Lusso and Quintess.
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From: A&K memberSaturday, December, 27, 2008 at 11:17 AM
I think pretty much that A&K equity model is a bit fake. They take a huge slug up front and then you wind up invested in houses that are rapidly depreciating in value so who wants that? They have too few locations and are too small to stay viable. You pay about 35% more up front in deposit to join for sub 3 million dollar houses. Stick with ER. they are big, they are safe.
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From: DC WatcherSaturday, December, 27, 2008 at 06:49 PM
What a phony. Impersonating an A&K member. Clearly A&K has shaken things up for the better in the DC industry, when you have competitors stooping to new lows like that.
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From: From a Real A&K MemberSunday, December, 28, 2008 at 05:53 AM
I'm actually a legitimate A&K RC member, and I can't say enough positive things about them. They did a great job integrating the Crescendo and Bellehavens members. They've followed through on every commitment made to us. As others have said, it's truly a consumer-friendly DC model, designed specifically in an attempt to avoid the problems that the DC industry is currently seeing. As recent problems with Lusso, Quintess, and HCC have illustrated, DC members have traditionally not known where their member deposits and dues have been applied to, and unfortunately, the reality has been that significant portions of deposits of many DCs were used to cover debt financing at high rates of interest, leases, and expenses other than actually buying real estate for the benefit of the club. A&K's sales commission is similar or less than other DCs, but it is actually out in the open unlike competitors. This is again in line with A&K's model of transparency. You know where your member dollars are going. Member deposits are actually used to purchase member-owned debt-free real estate (versus going into general company funds, the DC owner's pocket or being used to build the DC owner's real estate portfolio). Interestingly, now that other clubs are being forced to price their product more appropriately (since they're having trouble getting more credit), A&K is actually in line or less expensive than competitors. Here are some key differences between the A&K offering and other DCs: (i) members actually own the real estate, (ii) the club is (and is required to stay essentially) debt free, (iii) A&K has an incredible selection of high-end trips in 100 or so countries that members can take advantage of, (iv) huge marketing resources and existing customer lists to grow the club, (v) capital reserve monies are actually set aside to cover future real estate renovation/upgrade costs, (vi) access to unique experiences (often at no cost) that no other DC offers, (vii) transparency, (viii) stronger legal rights as an owner versus just being a customer or contract holder, (ix) full audited financials, (x) member representation on the board, (xi) very solid management, but also the ability in the members to remove and replace management if needed down the road, (xii) frequent member Q&A conference calls, meetings and updates, (xiii) the lack of the albatross of a huge number of existing members with unreasonably low deposits and dues that later members must subsidize or make up for, and (xiv) the lack of the huge albatross of a debt-laden portfolio mostly purchased at the peak of the market like some other clubs, leaving little equity. All of this is a powerful combination of advantages for A&K and drives some competitors nuts who will try to nit pick or just make up things to say about A&K.
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From: ER CommentSunday, December, 28, 2008 at 05:27 PM
ER is certainly big, but no one really knows how they are doing, since they don't release financials to members or prospects. If anyone has true insight to add, please post
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From: Another AK MemberSunday, December, 28, 2008 at 07:45 PM
I'm an AK member, and I've been asking that question all along.. Does ER cash flow positive? Nobody will answer that question for me, either when I was considering ER or now...
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From: AK NO SaferTuesday, December, 30, 2008 at 07:36 AM
Seems to be a religious love for A&K. Yet, their portfolio is just as much under water as rest of industry. They charge 27.5% up front + losses , means you are buying into seerious negative up front cost if this one goes the same route as Lusso. No way the parent company is making money, they'll drop association with this as fast as you can say Tanner and Haley.
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From: EKTuesday, December, 30, 2008 at 07:44 AM
They never post as they are successful. The wanna be's all post and hope to trick people to join when small numbers mean they are doomed to failure.
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From: From a Real A&K MemberTuesday, December, 30, 2008 at 09:14 AM
I suspect these posts have got to be from the same guy who used to post on www.destinationclubforums.com (dooijp), but got banned because he tried to pretend he was someone else. He won't ever respond to the 10-20 logical advantages to A&K's model, and he keeps repeating the same tired point that is actually more true about every other DC, but he acts like it only applies to A&K. I'm not sure why, but he seems to have a fervent hatred for A&K. What's ironic is that A&K is actually trying to improve an industry that sorely needs improvement, particularly from the perspective of the consumer and DC members.
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From: A&K industry saviorFriday, January, 02, 2009 at 06:24 PM
Yes, A&K is saving the industry. Now you too can lose 27.5% of your money up front! Plus you also get to participate in losses on the real estate which is probably down 20% by now. So invest now! down 47.5% at a deposit 35% higher than ER. Oh, you'll also own the houses which is such great security when the club goes under. better read the language though, not clear how the liquidation will really work....but having lost 50% day 1, for smaller inferior homes, maybe you don't care
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From: From a Real A&K MemberFriday, January, 02, 2009 at 07:43 PM
Yes, now we have confirmed it- same guy, same misinformation, same multiple identities. I guess he doesn't have to worry about Halogen banning him. Maybe he should actually investigate what other DCs and fractional providers charge. Maybe he should actually explain how ER is 35% less expensive than A&K (clearly he doesn't bother actually comparing the plans). Maybe he should explain how A&K's portfolio is down 20% (without ever seeing an appraisal) when a quarter of the portfolio is brand new and 50% bought very much pre-peak. Maybe he should educate us on how the portfolios of other clubs are doing so much better, including Q which he supposedly joined. Maybe he should actually provide one reason why the traditional, non-equity destination club model is better for the consumer. Now let's watch him repeat himself with a point that applies even more so to every other DC. Did he get fired from A&K or was he a T&H member that joined during the period that A&K licensed its name? Let's spend our time more constructively actually trying to improve an industry that could use it.
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From: Impacted TravelerFriday, December, 05, 2008 at 07:18 PM
All destination clubs are suffering right now and many are summarily raising dues and imposing additional regulations that make it harder for members to leave clubs and recover their deposits. While some of these may be painfully necessary, I think destination clubs should first cut the number of senior management (most layoffs have been in the services department rather than in the management department) and all senior managers should first accept salary cuts. This is one of the biggest costs of privately-run destination clubs which can liberally hire senior managers at high salary levels - which is something they have all done in the past. This should be undone before any restructuring takes place.