ARDA President Howard Nusbaum Discusses Destination Clubs
"Ten years ago I was on an airplane, and I was sitting next to someone who asks what I do for a living. I told him, 'I work for a resort development.' He told me that he was interested but didn't know specifically what I meant. I told him, 'interval ownership.' He asked me again what that meant. I told him, 'vacation ownership.' The gentleman stopped me and said 'Hey buddy, do you work for the CIA? What do you do?' At that point I brought up timeshares and he fully understood and told me that his brother had one and loved the product. I was running from the "T" word, thinking that it wasn't socially acceptable. I had to use it to define who I am. The answer isn't to run from the word, but redefine it."
Howard Nusbaum's story of his first days with the American Resort Development Association (ARDA) closely parallels the current state of the destination club industry. Following the bankruptcies of several leading clubs, some believe that the destination club label is forever tarnished while others are working to redefine the destination club model.
Mr. Nusbaum has served as ARDA's Chief Executive Officer and President since 2000 and met with The Veras Group to offer his insight and suggestions to the destination club industry. Following the collapse of industry titan Tanner & Haley in 2006, ARDA called for destination clubs to comply with existing timeshare regulations or support alternative regulations including third party independent financial guarantees of the membership refund and required disclosures concerning membership.
"I believe that destination clubs are largely foolish in fighting regulation," Nusbaum told us. "I understand the need to market a destination club differently from a timeshare. Destination clubs are in a gray area right now from a regulatory standpoint. It is an example of the marketplace getting ahead of the regulatory environment. Just like the government doesn't want to put up a traffic light until someone gets killed. After the failure of Tanner & Haley, there was a change of attitude."
Following the comments made by Nusbaum and ARDA, many of the destination club industry's leading players joined together to form the Destination Club Association (DCA). These leading clubs created a Code of Conduct and best practices that included several timeshare policies such as a member rescission period and mandatory disclosure on membership terms. DCA Member Club's also were required to conduct an annual independent audit to demonstrate that they could cover 66% of their membership debt obligation. Unfortunately, these policies did little to stop three of the club's seven members from filing for bankruptcy.
"I met (Exclusive Resorts Co-Founder) Brad Handler seven years ago and he told me about his idea. I told Brad the night I met him that with an ill intended or under-capitalized club or a change in the market place where real estate prices wouldn't be rising or demand was down, that the model would crumble. Private Retreats had come already launched, but Exclusive Resorts were the ones that perfected the model."
Nusbaum's analysis was cryptically accurate. Exclusive Resorts dominates the industry with over 3,500 members and $1.1 billion in real estate holdings and the recent real estate downturn and declining club interest caused by the financial markets have caused High Country Club, Lusso Collection, and Solstice into bankruptcy.
"I'm not anti-destination clubs," continued Nusbaum. "I am just cautious about any business model that doesn't assure the promises it makes to its clients. I want them assured or transparent if they can't be assured. We need to separate wishful thinking from reality, and I feel the same way about timeshares."
Nusbaum's cautious approach has been taken by many destination club prospects in recent months as the financial components and sustainability of clubs have been more closely analyzed prior to joining. Howard is keenly interested in the recent launch of one specific club.
"I am excited to see what The Ritz-Carlton Destination Club is doing. They are offering all the bells and whistles that consumers want in a destination club product, but financially assuring it with a deed that is backing up the program. All things that we have been saying for quite some time."
The launch of the Ritz-Carlton brand has excited many within the industry. The Ritz-Carlton launch, The Markers Club relaunch, and the continued success of Abercrombie & Kent Residence Club and Equity Estates has led many to believe that the next evolution of the destination club model is fast approaching.
"It might surprise some people, but I'm rooting for destination clubs for many reasons," said Nusbaum. "Firstly I don't want consumers to confuse the destination club product with the concept I represent. The headlines will be "Timeshare for Rich Fails" and that isn't good for anyone. Secondly, I love the entrepreneurial spirit. I don't think anyone is trying to do anything bad. I am hopeful that the present environment will show that financial assurance is important. Clubs need more than a "Life is Beautiful" plan. I believe what doesn't kills you makes you stronger, so this is an opportunity for the industry to grow up. It will be interesting to see if consumers migrate to clubs that have more security and some type of real estate backing."
Nusbaum concluded the interview with his thoughts on what he would want to know if he was looking to join a club. "I would want to know transparency. That is all I want to know. If I am giving you a deposit, what are the conditions for me getting the deposit back? What are the conditions where I don't get it back? What is the best case scenario and what is the worst case scenario? What are your financial statements? How will I know that you will be in business two years from today? What happens if you aren't in business and go into bankruptcy? Can I still use the product? What is your end game? Do you want to be here 50 years from now selling this product or is your goal to harvest real estate appreciation and move on? Personally I would ask myself what I was looking for in a club. Am I doing this because I want a year or two of vacations or is this an alternative to owning a second home?"