It would seem that industry insiders think that it’s not “if” a club will fail, but “when.” I was at the Ragatz Associates Fractional Interest Symposium last week (conference for luxury timeshare, fractional and destination club executives), where industry veteran Dennis Draper, president and COO of Leading Residences of the World, presented to the group and predicted that there would be one major club failure in 2006.

This in the same week that Michael Beindorff, COO of Exclusive Resorts, was quoted in Robb Report’s June issue:

“We don’t have lines of members that want out of the club and can’t get their money back. I think we’re going to begin to see that there are some clubs out there that have behaved a little irrationally and are going to have a very difficult time between now and the end of 2006”.

Helium Report’s take:

It’s not surprising that a club might fail – this is a new industry (in reality, less than five years old), with lots of new entrants. Most of the clubs have unclear financial undedrpinning (at least until you sign a non-disclosure), so it’s hard to really assess who is in strong financial shape and who is not. It’s one thing to talk about it. However, it will be another to see it happen, both for the industry and for the members of that club. There will be lots of stories in the media about members who won’t be able to get their deposit back. It will be ugly.

But in our opinion, it will not change the fundamental and compelling reason for the existence of the destination club industry: it’s a better vacation accomodation solution for affluent families than the alternatives, including high-end rentals and high-priced 5 star resorts. What a club failure will do is raise the bar even higher for all the clubs in the industry and for new entrants – meaning higher standards for financial disclosure, availability assurances, home portfolios and so on. All good for the prospective member.

If you are considering joining a club, double down on your due diligence efforts, especially as it relates to the financial stability and stewardship of the club. Remember you are “loaning’ them your money to buy homes in exchange to use them over the coming years. Check out our list of 20 Key Due Diligence questions, and get answers to them.

We are asking the clubs to be forthcoming with us on their own financial position, and we will pass on what we learn. If you have been reading Helium, you will know for example that we are impressed with backing of Leading Residences of the World by Cendant, and with the financial disclosure of Private Escapes and Dream Catcher Retreats, among others.

And if you have tips or inside information that you want to share, email us at tips@heliumreport.com.