ORLANDO, Fla. — Secure America Acquisition Corp. was looking for a homeland-security company to acquire. Instead, it settled on a vacation-ownership company in Kissimmee, Fla., called Ultimate Escapes.
The recently announced $186 million deal is a big one for the Kissimmee business, also known as Ultimate Resort LLC, which is the second-biggest “destination club” in the United States. The takeover will allow it to become a publicly traded corporation, with at least $20 million in new capital to help it expand.
The deal may also attract added attention to destination clubs, a niche market in the lodging business. Destination clubs operate on the premise that at least some of the world’s richest people do not want the hassle of owning a second home and are willing to pay for now-and-then access to a collection of luxury houses in exotic locales around the world.
So far, the industry has produced mixed results. Some established destination clubs have filed for bankruptcy in recent years as real estate values have plummeted. But other clubs, including Ultimate Escapes, have been able to pick up assets from the bankrupt clubs.
And earlier this year, the first major hospitality brand — Ritz-Carlton Hotel Co. — entered the destination-club business with an Orlando-based unit, Ritz-Carlton Destination Club, lending the market some credibility.
And even though Ultimate Escapes hasn’t generated an annual profit in its five-year history, Secure America saw enough potential in the business to urge its shareholders to approve the deal.
“The destination-club market is a unique segment of the hospitality sector, with significant long-term growth potential,” said Thomas McMillen, Secure America’s chairman and co-chief executive.
The destination-club market consists of a handful of major players and a larger number of smaller clubs. Consolidation has been a factor in keeping the field of competitors small; earlier this month, for example, Ultimate Escapes announced that it had gobbled up the industry’s No.3 company, Private Escapes Holdings LLC of Fort Collins.
The biggest operator in the business is Exclusive Resorts of Denver, which says it has more than 3,400 members and about 400 residences.
Membership in most destination clubs doesn’t come cheap: Ultimate Escapes’ initial fees, for example, range from $70,000 to $450,000, while a portfolio membership in the Ritz-Carlton Destination Club starts at $130,000. And members generally pay an annual fee as well.
Time-share executives fear that non-equity destination clubs may appear so similar to the time-share business that they could wind up bearing the brunt of a public-relations disaster should many clubs fail and leave their members empty- handed.
Time shares are now heavily regulated in many states. But regulation hasn’t caught up yet with destination clubs, said Dan Bachrach, a lawyer with Foley & Lardner in Orlando.
