Destination Bankruptcy

From the New York Times: Rainy Days in Paradise.

Destination clubs came into their own five years ago, as a growing number of affluent travelers sought all the advantages of a fancy second home without the inconvenience of upkeep or the monotony of going back to the same place year after year.

For a one-time deposit of $40,000 to more than $1.5 million — depending on how luxurious the accommodations and how long the stay — and annual dues of $3,000 to $100,000, club members would have access to an array of multimillion-dollar properties in prime resort locations —a stone farmhouse in Tuscany, an oceanfront villa in Costa Rica, a slopeside chalet in Aspen, Colo. Before they arrived, the club’s concierge would have stocked the refrigerator with the family’s favorite foods, arranged airport transfers, booked tee times or made restaurant reservations.

And for a while, the clubs thrived. Many used the hefty deposits and readily available credit to start building their collection of properties. Then, taking advantage of rapidly rising real estate prices, particularly in luxury markets, the clubs used their newly grown equity to take on more debt and acquire more homes. That, in turn, allowed them to lure more members with an increasing portfolio of destinations.

But when the economy fell apart, it largely took the destination clubs’ business model with it. Home values have dropped, new credit has dried up and membership sales have plummeted, leaving many of the clubs with more bills than income. Several have filed for bankruptcy. Some have asked members for special extra payments to help them survive. And others have made significant cuts in business expenses.

In late January, High Country Club, which was founded in 2005 and quickly grew to about 375 members, filed for Chapter 7 bankruptcy, listing hundreds of creditors and debt totaling about $25 million.

Smaller clubs, like the 140-member Portofino and the 150-member Lusso, with residences that averaged more than $3.5 million, also filed for bankruptcy last year. And the exclusive Yellowstone Club World, a collection of properties from Tim Blixseth, the developer of the elite Rocky Mountain ski and golf resort called the Yellowstone Club, never got off the ground.

Kasey D’Amato, a dermatology physician assistant from Los Angeles, who joined High Country Club last July, paid a $40,000 deposit and about $4,600 in annual dues in exchange for 19 nights of travel a year. She and her husband, Stephen, had two vacations planned — Easter weekend in Aspen and a May trip to the Turks and Caicos — when the club went under.

“They just canceled the reservations,” Ms. D’Amato said. Beyond the lost vacations, she added, “No one likes to lose that kind of money.”

So what exactly did these fools get for their money? The illusion of "owning" something and the future "promise" of a vacation?

A really quick calculation shows that these illusions are quite expensive.

Whether you're average Joe or a billionaire, there's only one "correct" way to do these things. Pay as you go. Get your money's worth NOW independent of whether you plan to spend $500 or $500K on a vacation.