Consumers are viewing the destination-club industry with more caution since the recent bankruptcy filing of its second-largest player, Tanner & Haley Resorts.
Colorado is home to five of roughly 20 luxury-residence clubs in North America, including the industry leader, Denver’s Exclusive Resorts. Four of the local clubs, worried that the Tanner & Haley bankruptcy might dent the sector’s explosive membership growth, are working to address customers’ concerns.
“For the industry, this probably is the perfect wake-up call,” said Richard Keith, who was chief operating officer at Tanner & Haley in 2003 before leaving to start Fort Collins- based Private Escapes.
Problems surfaced in late July, when Connecticut-based Tanner & Haley filed for Chapter 11 bankruptcy protection, citing operating losses of $64 million for 2005.
The private company remains in operation and says it is working to reorganize. But many of its more than 800 members are wondering how to recoup their deposits, which ranged from $85,000 to $1.3 million.
At least two Colorado-based Tanner & Haley members are caught up in the bankruptcy.
Richard Korpan, a retired energy executive living in Evergreen, is suing Tanner & Haley in an effort to regain his $475,000. “It has been a very negative experience,” he said.
RJ Nation, president and chief executive of Greenwood Village-based Regency Merchant Solutions, said he plans to wait out the reorganization process.
“We’ve had 10 vacations with them, and they’ve all been really terrific experiences,” said Nation, who paid $425,000 to join the club more than two years ago.
Destination clubs, which offer access to multimillion-dollar homes and five-star service, are one of the travel industry’s hottest segments. Membership sales grew from $130 million in 2003 to roughly $750 million last year, according to industry consultant Ragatz Associates.
To join, people pay a one- time fee, ranging from $20,000 to $3 million, plus annual dues of $6,000 to $75,000. Most clubs offer at least an 80 percent refund on the initial fee if a member resigns.
Tanner & Haley’s largest problem, industry leaders say, was leasing a large number of properties instead of investing in real estate. Bankruptcy filings showed it has collected $308 million in member deposits and other liabilities but has only $130 million in real-estate assets.
“You cannot take a membership capital contribution and use it for the expenses of a lease,” said Keith. “You have to be investing the majority of that in appreciating assets.”
To help regulate the industry, six clubs – led by Exclusive Resorts – banded together last year to form the Destination Club Association.
The group has created requirements such as regular, independent audits and more financial disclosures to members. Participating clubs also will be required to have enough real-estate assets to cover 100 percent of members’ refundable deposits.
“What we’ve tried to do is introduce a lot of disclosure requirements, so that if there is a problem, people will learn about it right away,” said Adam Wegner, president of the group and an executive vice president at Exclusive Resorts.
The other participating Colorado companies are Private Escapes, Denver-based High Country Club and Boulder- based Quintess, which recently announced a $62 million merger with Greenwood Village-based Dream Catcher.
“Anything to assure absolutely that the consumer’s deposit is protected will help grow the industry,” said Dick Ragatz, president of Oregon-based Ragatz Associates.
Colorado companies stress that the industry is still booming. Exclusive Resorts reported 20 percent growth in the past three months, bringing it to almost 2,400 members. High Country, now at 154 members, added 35 new people in August.
“We are very confident in our business model,” said High Country president Christian Kirshner. “We have to be prepared to answer the tough questions, and we are.”
Staff writer Julie Dunn can be reached at 303-954-1592 or jdunn@denverpost.com.
