Helium Report spoke again recently with David Latko, a financial advisor and author who earlier conveyed his general thoughts on destination clubs and what to consider before joining. We asked Latko, a Tanner & Haley member, about the risks that have been exposed by the bankruptcy filing.

Latko outlined his suggestions for destination club policies and disclosure:

• Consistency in homes and the real estate experience, which is accomplished by having a majority of club-owned, not leased, homes. Also homes of the same size, location and quality so that members are not competing for the best homes at any one location.
• Complete transparency in club operations from the financials through to the reservation system.
• A “1 in, 1 out” membership retirement requirement, with a maximum one year wait for the return of the deposit.
• A 100% membership deposit refund, at least in the first year, so that a member is not penalized for making a mistake in joining.
• A “fairness clause” so that all members (within the same membership plan) are created equal and there is a level playing field when making reservations.
• A strong level of communication and dialogue between the club and its members coupled with an effective way for members to input into club decisions, such as new locations.

Before the Tanner & Haley bankruptcy filing, Latko would have suggested that prospective members talk to the owners or principals, not the salespeople. As part of the due diligence process, demand to see financials and understand the level of assets owned by the club that back up all the membership refund obligations. He also would have encouraged you to understand how the club and its principals make money and assess if that is aligned with members’ interests.

Now, he is obviously more cautious, recomending that prospects wait until federal regulation is in place, so that the clubs are compelled to reveal their real financial health. Helium Report does not agree that all prospective members should wait for federal regulation, but we understand his frustration, since it has been revealed that Tanner & Haley only owned 67 of the approximately 200 residences in their portfolio.

Helium Report Persepctive

There are several variations of the fundamental business model and of the way clubs handle key issues like legacy memberships, leasing quotas, peak usage and property value fluctuations. Undoubtedly some combinations will prove unsustainable, as can be seen with Tanner & Haley. It’s a question of both the club’s underlying model and their skill, confidence and timing in addressing changing market conditions.

Helium Report believes there is a viable and attractive proposition for members, but it’s a complex decision which deserves careful due diligence. You’re not just buying into a lifestyle; you’re buying into a specific portfolio of properties, a residence acquisition plan, a booking and availability process, a financial model, and a management team.