Man of Leisure

The clubs' appeal is based on a simple premise: the reality of owning a vacation home is far less satisfying, both emotionally and economically, than it sounds. Atlanta physician Mark Feeman used to own a beach house and a mountain retreat, but he grew tired of the expense and maintenance hassles. "While the kids went hiking and my in-laws got to stay for free, I was waiting for Billy Bob the gravel guy to show up," says Feeman, who sold both places when he joined Exclusive Resorts. Many second-home owners share Case's complaint: that they feel a nagging obligation to visit their vacation residence to justify the cost, even if that means skipping other trips that might be more fun. The average vacation-home owner spends just 39 nights a year there, according to the National Association of Realtors, and when you prorate the costs--property taxes, utilities and upkeep--over such short stays, the per-night cost may exceed a stay at the Ritz Carlton.

Selling prospective members on that math has grown easier as the housing boom has faded. Three years ago, Case says, "people felt any idiot could buy resort real estate and make money--and for a brief period of time, it was true." Today people aren't as sure a second home will appreciate in value, causing more to view it as an expense rather than an investment. Viewed in that light, Exclusive Resorts' proposition can be compelling.

In July the company added 250 members, its best month ever--a momentum it attributes to its snowballing size. Case says destination clubs enjoy a "network effect," just like AOL or eBay: the more people that join, the more enjoyable it is, because the company can use their initiation fees to buy more homes in more destinations. Handler, the company founder, says Case recognized this dynamic early on and urged his team to scale the business quickly. "What Steve really provided us more than anything else was confidence," Handler says. Soon after Case bought in, a developer offered to sell the company its first home at Telluride. Instead, Case urged his team to buy nine--a deal that exceeded $30 million. Today the company buys 20 or more at a time, allowing it to get discounts from builders and to spread the costs of housekeeping, maintenance and concierges over multiple properties. Better inventory also limits complaints from members who can't always get a house they want at a specific destination during, say, school-vacation week.

Despite Exclusive Resorts' apparent momentum, its rival's bankruptcy filing--which followed months of rumors about its deteriorating finances--has raised questions about the entire industry's economics. According to industry observers and Tanner & Haley's own court filings, the company erred by offering its members overly generous financial terms (including 100 percent refunds when they resigned), leasing too many homes instead of buying them, and spending too much on short-term rentals to accommodate customers who insisted on booking trips during peak vacation times. Says Case: "I personally never understood their model."

In contrast, Exclusive Resorts managers say they're charging members more in dues for fewer nights of lodging--a key reason, they say, their business is viable. Members' dues already cover the costs of operating the homes, execs say, and within a couple of years Case's team expects revenue will also cover overhead and new-home costs, turning the bottom line from red to black. "We've never been stronger, our members have never been happier and our company has never been more stable and sound," says Donn Davis, the company's CEO and Case's longtime lieutenant. To reassure members, Exclusive Resorts now undergoes an annual independent audit and has promised members it holds sufficient assets to pay their 80 percent refund if the club were to liquidate. Some observers see this transparency as the upside of Tanner's woes. "It's a good shakeout--it's almost a relief that it's happened," says Adele Cygelman, editor of Robb Report Vacation Homes. "Now the top players can rethink their priorities and hopefully they'll just get stronger."

Eventually, Case and his team envision Exclusive Resorts serving tens of thousands of members. As the concept catches on, they wouldn't be surprised if luxury-hotel players like the Four Seasons or Ritz Carlton enter the fray, and Case suggests it's an industry that's likely to become segmented, with individual clubs geared toward skiers or golfers. Some clubs may even move down-market, providing access to people who lack the $3 million-and-up net worth that constitutes Exclusive Resorts' target demographic. For now, though, the company's clients seem content to enjoy themselves. Bill Finnegan, a Texas attorney whose family became Exclusive Resorts' 2,000th member in June, says he's thrilled to avoid the huge hotel bills he used to face when checking out of luxury resorts. "At the end of the trip, that kind of ruins it for me--it's a lot easier to make a dues payment at the start of the year, then it's done," he says. It's yet another reason why when it comes to vacations, membership does have its privileges.

© 2006