Tanner & Haley, the destination club pioneer, filed to reorganize under Chapter 11 today in the U.S. Bankruptcy Court. In a press release issued this morning, Tanner & Haley cited four reasons for the voluntary petition to reorganize:

• “costly short-term leases”
• “memberships at extremely low annual dues”
• “pursued various business and real-estate ventures…that ultimately proved unsuccessful”
• “increasingly stiff competition in its industry”

Tanner & Haley has raised interim debt financing of $10 million and expects to secure an $85 million permanent credit facility in the near future. Holly Felder Etlin, a Principal with XRoads Solution Group, has joined Tanner & Haley as Chief Restructuring Officer. According to a Tanner & Haley spokesperson, they hope that over the next several months the restructuring team will find the business model and membership plan offerings that will allow the club to succeed financially and operationally. There is a password protected members-only website that will be used for all on-going communication about the restructuring process.

The firm had already announced the suspension of new member sales, and more importantly, recent member refunds. In the announcement, Tanner & Haley also stated the company expects to “substantially meet all travel commitments previously made.”

Helium Report’s take:

Tanner & Haley pioneered the industry in 1998. Originally founded as Private Retreats, the company has grown to “more than 750 members” among three clubs: Private, Distinctive, and Legendary Retreats. Over the past eight years, close to thirty new firms have entered the destination club market, from “charter phase” startups to industry leaders such as Exclusive Resorts. Some of these firms recruited former Tanner & Haley employees and have been able to refine their own business models based on knowledge of what did and did not work at Tanner & Haley. Many of these new firms also do not have the burden of legacy members that joined the club at low membership deposit and annual dues rates, as compared to the market rates today.

It’s not unusual for a pioneer to struggle as competitors learn from the challenges they face. For example, many firms now restrict the percentage of leased homes within their portfolio. Also, the wave of new entrants probably impacted new member sales for Tanner & Haley, further straining their finances.

We have said before that the destination club business model remains relatively untested. It will take more time and ups and downs in the industry until the model is proven to be sustainable and profitable. Consistent, measured progress from industry leaders like Exclusive Resorts, Private Escapes, and others is very encouraging. Prospective members need to be comfortable that the club they choose can survive at least two potential slow-downs:

• real estate appreciation in vacation markets
• new member sales

Destination clubs needs to demonstrate that the companies can be viable in many market conditions – not just the favorable ones.

UPDATE: Click here to read industry reactions from C-level executives of Exclusive Resorts, Private Escapes, and BelleHavens.