Icons & Innovators: Club Rules

  • Patricia Harris and David Lyon

The four-bedroom, four-and-a-half-bath residences at the Carnegie Abbey Club outside Newport, R.I., could never be mistaken for hotel rooms. Downstairs, dual-hearth stone fireplaces separate dining areas from formal living rooms. On the upper levels, expansive media rooms serve as hubs for family life. Furnishings throughout the homes are stylish but not precious—no need to hesitate before putting your feet up on an ottoman. Private pools are large enough to swim laps in, and screened back porches, furnished with lounge chairs and lit by candles in hurricane globes, offer romantic retreats once the children go to bed.

This is precisely what Brent Handler expects when he goes on vacation.

As recently as 2002, Handler, the cofounder and president of Exclusive Resorts—which owns five of these $3 million residences at Carnegie Abbey—was a self-described "frustrated second-home owner." When his family went to their Vail Valley vacation home, he missed the perks of a good resort. When they stayed at a resort, he missed the size and comfort of his home. So Handler and his brother Brad, while on a family vacation in Hawaii, conceived the ideal family-vacation retreat, one that had "the size and elegance of a private residence combined with the services and amenities of a luxury resort," recalls Brent.

That formula soon became a company mantra. By March 2003, Brent, his brother (who has since left the business), and partner Tom Filippini (now the executive vice president) had secured properties in Manhattan; Los Cabos, Mexico; the Big Island of Hawaii; and Beaver Creek, Colo.; and had sold their first membership to Exclusive Resorts. The company, based in Handler’s hometown of Denver, promised access to its portfolio of second homes in exchange for an up-front membership fee and annual dues. "I thought some people might be really interested in the [concept]," Handler recalls. "It turned out a whole bunch of people liked it."

One of those people was Steve Case, cofounder of America Online. In the summer of 2003, Case acquired a 50 percent stake in Exclusive Resorts. By the following September, he was the principal shareholder in what would soon become the 800-pound gorilla in the increasingly popular—and largely unproven—destination-club industry.

Exclusive resorts was not the first destination club. That distinction belongs to Private Retreats, a company founded in 1998 by time-share entrepreneur Rob McGrath and at one time affiliated with Abercrombie & Kent. McGrath’s club offered members unlimited access to homes and condominiums for a one-time membership fee, annual dues, and a per diem charge. The company also guaranteed the availability of homes; if a member could not reserve a Private Retreats property in a given location, the club would rent a comparable home on the member’s behalf.

While Exclusive Resorts did not invent the destination-club model, the company tweaked the formula just enough to make it work. The club eliminated the per diem fee, and it added different levels (and prices) of memberships, which provided access to the club’s homes for varying numbers of days per year. Exclusive Resorts also did not guarantee the availability of homes, although it did offer a financial pledge: The company promised to return 80 percent of its up-front fee if a member left the club for any reason.

In the years since Handler founded Exclusive Resorts, the destination-club industry has experienced explosive growth—as well as the demise of the field’s original entrant: Tanner & Haley, as McGrath’s company eventually became known, filed for bankruptcy in 2006. (In July 2007, a group of former members filed suit against Abercrombie & Kent for allegedly misrepresenting itself as the owner of McGrath’s club, which had licensed the A&K name.)

As its primary competition foundered, Exclusive Resorts accelerated to a point where, with 3,000 members, it is now larger than all other destination clubs combined. The company today owns or operates more than 350 homes in 40 locations throughout North America, the Caribbean, and Europe.

Unlike some destination clubs, which offer stand-alone showpiece properties for those who place a priority on privacy and unique architecture, Exclusive Resorts caters to members who prefer a more casual, community-oriented experience. "Our kind of member doesn’t want an over-the-top, I’m-going-to-get-lost-in-this-house, $10- or $12-million mansion," says Handler. "It’s less appealing than a functional, really nice house that’s designed for families on vacation."

Exclusive Resorts member Todd Zelek shares Handler’s view of the ideal retreat. "I don’t want an isolated house away from a resort," says Zelek, a South Pasadena, Calif., resident who, in 2003, was among the first to sign up with Exclusive Resorts. "When you go on vacation, you want to be able to get a meal at 11 at night. You want to be able to go down to the pool and have a drink."

From Exclusive Resorts’ five wood-shingle homes at Carnegie Abbey, it is a quick jaunt by electric golf cart to the club’s pool, dining room, links-style golf course, and weathered red horse barn. The rambling property, where monks from the neighboring abbey sometimes take their constitutionals, exudes New England charm: The grounds contain an early-18th-century cemetery and ancient apple trees that droop with fruit in the fall. "People want to come and put on their sweaters, light the fireplace," says Carrianne Matte, Carnegie Abbey’s clubhouse manager, who also runs Exclusive Resorts’ on-site concierge service.

Sometimes, those people want a lot more. Michael Johnston, a Seattle-area hedge fund manager, booked two of the residences at Carnegie Abbey and enlisted Matte and her staff to plan a surprise party for his wife, Marybeth, on their 20th wedding anniversary. "She always dreamed about getting married in one of the Newport mansions," Johnston says. "But when we got married, we had no money. I wanted to give her the fairy-tale wedding she’d always dreamed of by renewing our vows in one of the mansions."

The Exclusive Resorts concierges arranged everything, even a mock charity auction that served as the premise for Marybeth to venture into Newport in her finest evening attire. The concierges coordinated travel for a cast of family and friends, organized a sailing race aboard six former America’s Cup yachts, and set up a massive lobster bake around the pool. "I can’t imagine any other concierge service that could have or would have done what Exclusive Resorts did for us," says Johnston, who notes that his anniversary bash has raised the bar among his friends.

Johnston says that his wife initially was skeptical when he bought their Exclusive Resorts membership in 2003. "But once we started using it," he recalls, "she thought it was the smartest investment I’d ever made."

Other early destination-club members acknowledge that they were taking a risk by buying into the industry. Zelek, for one, looks back with relief that he selected Exclusive Resorts, which, at the time, was little more than a good idea. "I thought the concept was great," he says. "I thought from a value perspective it was a no-brainer. Even if the properties just maintain their value, at the end of 30 years, I get 80 percent of my money back. At the end of 30 years, I probably wouldn’t care if I got any of my money back."

Even before the downfall of Tanner & Haley, destination clubs had begun to create fiduciary standards to reassure consumers. In a code of conduct that became effective in October 2007, the six founding members of the Destination Club Association (including Exclusive Resorts, whose general counsel, Adam Wegner, serves as the organization’s president) agreed to maintain real estate assets valued at a minimum of 66 percent of the amount payable to members upon termination. Asset-rich Exclusive Resorts goes further: "Our basic promise to our members is that if we sold all of our property at what it has been appraised at by a third-party appraisal company, we could pay everybody back," says Handler, whose company’s current inventory is valued at more than $1 billion.

The 66 percent guarantee is based on the "concept that not everybody will ask for a refund at the same time," says Georgia attorney Jim Scavo, who works both with consumers and with providers in the destination-club industry. "It’s the same principle as oversold seats on airlines. One hundred percent is clearly a gold standard."

Scavo recently worked with a couple who were drawn to the destination-club concept because the size of the properties would allow them to vacation with friends. "We laughed about the Big Chill factor," he says, "sitting around with a bunch of friends, eating in your own kitchen."

Handler understands that scenario. "For people who have the means, their vacation time ends up being the most important four or five weeks of their life," he says. "They want every detail to be perfect."

And they want choices. From its original four locations, Exclusive Resorts has expanded rapidly, primarily adding beach and mountain resort properties. By 2010, another 125 homes, estimated at $400 million, will be available to members.

Exclusive Resorts often meets member demand by purchasing existing homes in coveted locations, such as Beaver Creek and Kiawah Island, S.C. Of late, however, the company has taken a more comprehensive approach. On Costa Rica’s Peninsula Papagayo, the club recently opened a 21-home resort and clubhouse exclusively for its members—a model that smaller rival Quintess is emulating in Los Cabos. Exclusive Resorts also acquires homes early in the construction process at larger resort developments and configures the interiors to its own design standards.

When the historic Bath Club on Miami’s Millionaires’ Row sprouted a high-rise tower, Exclusive Resorts bought 10 raw units. The company crafted the interiors in a contemporary style, with light walls, cool stone floors, and dark wooden furnishings. The residences have ready access to a broad, white-sand beach, yet at least some guests rarely venture outside: In October, four women took over a unit and engaged in a marathon four-day bridge session at the kitchen table, overlooking the beach.

The Bath Club opened to Exclusive Resorts members in late 2005. In June 2007, the company opened 16 homes on the Ritz-Carlton golf course on Grand Cayman. At Sea Island in Georgia, the club is building 24 homes as part of the residence community at the Cloister. The units are due to open in 2009—and none too soon. "This was the number-one requested resort by members," says Handler.

Exclusive Resorts’ rapid expansion has been limited mostly to North America, but businessman Christoph Klingspor of Hickory, N.C., favors the company’s European properties. The 52-year-old grandfather admits that he’s a workaholic: "I joined Exclusive Resorts because I wanted to spend more time away from work," he says.

Klingspor and his family booked one of Exclusive Resorts’ lodges at Chamonix in the French Alps when the units first became available, in 2005, and now they return every year. He also has stayed in the two-bedroom suites in the Hôtel Raphael in Paris. "That’s an old place. You think you are visiting with the king," he says. "It’s not the kind of decor I would want in my own house. But to be in there for a few days is absolutely fantastic."

Klingspor’s favorite destination is Tuscany, where the seven Exclusive Resorts farmhouses are among the club’s most sought-after properties. Handler acknowledges that demand there exceeds supply, so Exclusive Resorts is restoring three more farmhouses in the region and is evaluating other potential acquisitions in Europe.

Handler disputes the notion that members of a large club have more difficulty securing dates and properties than do members of a smaller club. "This is an industry and concept that actually requires scale," he says. As a market leader, Handler contends, Exclusive Resorts has been able to meet demand by negotiating deals for several new homes in the best locations.

At least two of Exclusive Resorts’ competitors appear to have recognized the advantages of scale. In September, Ultimate Resort and Private Escapes announced a $200 million merger. At press time, the new club’s name and membership packages had yet to be announced, but the goal was clear. "The product that will emerge will best compete with Exclusive Resorts," says Richard Keith, president and CEO of Private Escapes. "We consider Exclusive Resorts to be our main competitor."

The merged club will be as large as the rest of the industry combined, excluding Exclusive Resorts. It will comprise 1,200 members, including 650 former Tanner & Haley members who were able to join Ultimate Resort with no up-front fee when Ultimate paid $98 million for the company’s properties. The new club also will have properties in more destinations—50 compared to Exclusive Resorts’ 40—but fewer homes overall, 140 to Exclusive’s 350.

Scavo, who served as counsel for Ultimate Resort in the merger, views such realignments as "a natural product of an emerging industry" and believes that competition can only benefit the members. "These two big clubs are competing, and the way they sustain their retention is to keep their existing members happy," he explains. "Members will say, ‘You have to keep us happy. There are alternatives.’ "

Offering alternatives is central to Exclusive Resorts’ future plans. In April 2007, the company launched Once in a Lifetime, a selection of travel experiences that club members can choose in lieu of time at one of the club’s residences. The first offerings sold out quickly, prompting the introduction in October of a new catalog of trips—from skiing in Patagonia to spa retreats in Thailand.

Exclusive Resorts also is concentrating on the commonplace. "Everybody with young children, myself included, has to go to Disney World," says Handler. So during Christmas week and one week in the summer, Exclusive Resorts takes over a portion of the Grand Floridian Resort & Spa at Disney World and arranges early and late access to the park.

Handler travels so often to his company’s properties that he jokes, "If I vacation any more, I’m going to get fired." But it is not all play and no work for the club’s founder. "Exclusive Resorts vacations are really great fun for me and my family, but it’s not as carefree as I would like," he says. "I’m always counting something—nobody else ever notices the imperfections but me. But if that’s the only hazard to the job, I’m very lucky."

Exclusive Resorts, 303.226.4900, www.exclusiveresorts.com

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