We spoke earlier this month to Steve Peterson, a partner at Ballard Spahr, and arguably one of the country’s experts on the formation and corporate structure of fractional real estate businesses, including destination clubs.

Steve confirmed what we have been thinking and saying: that a prospective member to any non-equity destination club should be comfortable on two key aspects of their membership:

• the ability to get back the membership deposit, at any time or in the disaster scenario, of a club wind-down.
• the ability to get enough access to homes, to make the membership worthwhile.

The first can be hard to do, since you need access to information you may not have (nor does Helium) and because there are many ways that clubs can use to assure you that your deposit is “safe”. These include refund insurance (like Leading Residences of the World), a club structure that holds real estate in a “separate account” (like BelleHavens), the ability to see audited financial statements from the club (Private Escapes and other clubs offer this, usually under a non-disclosure for prospects they consider serious) or the assumed financial backing of signifigant backers (such as Cendant at LRW, and Steve Case at Exclusive Resorts). All of the above can help a prospect get comfortable, and we will discuss all of them over the coming weeks.

More on #2 later this week – and we have covered it before.

Steve was optimistic that the destination club industry would settle on some level of disclosure that help the consumer understand the risks involved, but would also give the clubs the needed flexibility to develop what is still a new business model. So are we. But that does not mean that prospective members should not ask their own questions.