Ms. Hehir

Condo Hotels

Fractional Resorts, Destination Clubs and Timeshares: A Closer Look at Vacation Ownership

By Kim Hehir, VP of Strategic Planning, The Leading Hotels of the World

Residence clubs, condo-hotels, timeshares, fractional resorts, and destination clubs are all elements of a booming phenomenon that is having a strong impact on the luxury hotel and travel industries.

However, these concepts are not entirely new. They are variations of a concept that began in Europe in the 1960s as families realized that owning a vacation home made more sense when it was shared among friends who wanted to use the home during different time periods. Over the past 40 years this concept has evolved to encompass a number of different business models within the vacation ownership industry. Among them are:

The upsurge in the vacation ownership industry over the past two decades has been remarkable. Sales have been growing at a compounded annual rate of more than 17% for the past 22 years. In 2002, high-end and Private Residence Clubs (PRC) accounted for USD 357.9 million in revenue, a growth of USD 197.2 million in just four years.

One of the most remarkable aspects of the industry as a whole has been its proven resiliency. It has continued to grow, even during the recessionary periods surrounding the Persian Gulf War, the September 11th attacks, and the most recent Iraq conflict. In 2003, timeshare resorts enjoyed occupancy rates averaging above 85% while traditional hotels experience occupancy rates that averaged significantly lower.

According to Peter C. Yesawich, PhD., managing partner of Yesawich, Pepperdine, Brown & Russell. "Fourteen percent of the of active leisure travelers in America are interested in becoming vacation owners within the next two years, roughly the same percentage as those interested in playing golf on vacation." This statistic translates into approximately 13.4 million adults.

His study also revealed the demographic diversity of those interested in purchasing timeshare: 71 percent are white, 15 percent are African-American and six percent are Hispanic. The highest concentration of interest is among Gen-Xers (between 25 and 38 years of age), while 10 percent of those over 58 are interested in purchasing. The "over 58" segment represents empty-nesters who spend their leisure time with their children and grandchildren. Therefore, being able to stay at a home with all of the services and amenities is extremely appealing. The Gen-Xers, on the other hand, tend to be jet-setters who do not want to be tied to one particular place. Many of the Gen-Xers are likely to be the children of earlier timeshare owners and are familiar with the advantages of the concept of interval ownership; however, they are looking for a product that is more exciting than the timeshare their parents owned.

These are the reasons why no other niche within the industry is experiencing more explosive growth than luxury destination clubs.

A relatively recent phenomenon, destination clubs first emerged on the horizon in the late 1990s and quickly gained a foothold among affluent consumers as an appealing alternative to owning a second home. As with other vacation ownership models, the destination club presents an option that offers less financial risk (money-back guarantees), no maintenance worries, increased flexibility (travel any time during the year) and a multitude of choices (stay at a home in Cabo or an apartment in London) and a variety of services and perks not inherent in traditional vacation ownership models (private jet transfers, personal chefs, etc.). In short, these clubs offer a more luxurious and personalized vacation experience.

While destination clubs are considered a logical extension of the 40-year-old timeshare model and the more recent fractional or private residence industries, they have marked differences. "Destination clubs are, in fact, more akin to an investment in a country club community," according to Steve Dering, founding principal of Destination Club Partners, the force behind Deer Valley Club in Park City, Utah, the prototype for the high-end luxury fractional industry, and The Leading Residences of the World's new Chief Marketing Officer.

Timeshare and fractional consumers buy a share of a specific property with the hope of trading their time with other owners. Destination club buyers, on the other hand, purchase access to some of the world's most sought-after destinations, with none of the risk that comes with traditional vacation home ownership.

Luxury destination clubs allow a specific and limited number of consumers to purchase membership in a club rather than invest equity in actual real estate. This non-equity product provides consumers with significantly less commitment or capital investment by refunding all or a great deal of a one-time membership deposit.

Across the board, the increasing popularity in vacation ownership continues to open new doors - literally - for hotels to expand their client base - and increase their revenues.

By participating in a destination club such as The Leading Residences of the World (www.lrwclub.com), a hotel can realize a number of substantial benefits. In addition to giving them the opportunity to secure a lifetime customer, participation allows these hotels to monetize their unused inventory, smooth out seasonal peaks and benefit from increased income streams. Club members have paid in advance for their stays, and will thus be more inclined to spend money in on-site outlets, such as restaurants, spas and retail establishments. Perhaps most attractive of all, participation provides hotels with a solid source of capital for investment in renovation, refurbishment and restoration.

In conclusion, what was considered a mid-market vacation option is now an established, mainstream travel alternative across all segments of the industry. Furthermore, as we witness the burgeoning growth of the industry and the creative (and sometimes questionable) business models that are emerging to capitalize on this trend, savvy hotel owners will conduct the proper due diligence to ensure that their customers and their businesses will be protected long term.

Kimberly Moffitt Hehir is Vice President of Strategic Planning for The Leading Hotels of the World since. She manages joint ventures and ancillary businesses and acts as liaison between each department within Leading Hotels of the World. She is responsible for sourcing and evaluating new business opportunities which yield a substantial return on investment, deliver value to the shareholders, enhance member benefits, and will achieve the company's overall goal of becoming an all-inclusive provider of goods and services to the luxury marketplace. Ms. Hehir can be contacted at 212-515-5630 or khehir@lhw.com Extended Bio...

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