Luxury-Home Clubs Pitch Themselves as an Investment


A million-dollar vacation home for a fraction of the price sounds good to anyone.So good that an entire industry has sprung up to put you in one. Companies like Exclusive Resorts LLC and Tanner & Haley Resorts (which includes two former Abercrombie & Kent Clubs) offer fancy houses in places like Vail and Cabo. Members pay a one-time deposit from $95,000 on up, plus various fees, then get a choice of those vacation digs for a few weeks a year.
One downside: Since you're not buying real estate, you don't profit if prices rise. Cash out of many of these clubs and all you get back is the deposit.Now, however, that's starting to change -- marking a shift in this booming business that complicates buyers' decisions.One new company, Crescendo, part of Private Residences of the World LLC in Roseville, Calif., lets buyers share 60% of any appreciation in the 36 or so properties in various locales it intends to buy. (It will have four available by year end.) It plans to sell all 36 in 10 to 12 years, then divvy up any gains among members, who typically invest $250,000 to $325,000. Crescendo itself keeps the other 40%. If there's a loss, management and club members share it equally.
Call it a real-estate bet combined with a vacation. (It's also literally a securities offering, with a private-placement memorandum listing pages of risks.) A more established rival, Private Escapes Destination Clubs LLC, plans to offer something similar next year.At first glance, it all sounds great. You don't even have to clean the gutters. But there are some big caveats. For starters, this could be a bad time to bet on property, given the run-up to-date. Crescendo is brand new and unproven. Exiting the clubs can be tricky. Also, the clubs might soon come into the sights of state regulators. (Currently they're largely unregulated.) How new rules might affect them is anybody's guess.
Not scared yet? Here are your options: Crescendo offers unlimited upside -- and a great deal of risk. It estimates that a member who puts in $295,000 would end up with $464,005 in 12 years if property values rise 7.5% annually. Or, they could lose big if management performs poorly or prices fall.Some more-established rivals also offer upside potential. In August, Tanner & Haley told members that if they had joined in, say, 2004 and quit in 2018, they could get a refund based on the 2018 deposit price (minus a transfer fee), instead of their original 2004 fee. But if the deposit price falls, members get the lower amount.
There's no downside risk at Private Escapes, but limited upside. It annually credits 18% of the appraised value of any real-estate gains to members of its higher-end club.With Exclusive Resorts, you know exactly what you're getting: a loss. It keeps 20% of your deposit when you quit. Yet it's also signed up 1,700 members -- more than all other clubs combined. Chief executive Donn Davis argues that his members are seeking vacations, not investments. "We don't think people are going to want to be on the slopes worrying if the Telluride real-estate market is going up or down."By Ron Lieber, WSJ Online