Ultimate Escapes, whose 1,200 members paid at least $70,000 apiece for pampered holidays in villas and yachts from Tuscany to Costa Rica, is taking a trip to bankruptcy court. "Let me start off with the bad news," Chief Executive Officer Jim Tousignant, 49, began a Sept. 9 letter to members. The six-year-old club, he continued, was in default on a $90 million loan and "increasingly likely" to seek bankruptcy protection. On Sept. 20 it went into Chapter 11 with debts of $100 million to $500 million, becoming the latest casualty in the destination travel industry.
In an interview before the filing, Tousignant blamed the 2008 financial crisis for the fiscal woes. Ultimate Escapes raised $15 million from a special assessment on members in January 2009. In October 2009 it went public, hoping to sell $30 million in stock, but raised only $10 million. "When your cash stops flowing, your expenses don't stop," Tousignant said in the interview. "You've got staff, you've got properties, you've got fees, property taxes, mortgages that have got to be paid."
Destination clubs such as Kissimmee (Fla.)-based Ultimate Escapes and Denver-based Exclusive Resorts (partly owned by America Online (AOL) co-founder Steve Case) offer luxury vacations, complete with in-house concierges and on-call maids, as a more luxurious and exclusive alternative to a time-share or second home. "Upon entering your log home, you will be welcomed by the rustic mountain decor," reads a description of an Ultimate Escapes four-bedroom house in Stowe, Vt. "You or your Private Chef will love the Viking stove, complete with six burners and two ovens, and Sub-Zero refrigerator for creating dining masterpieces."
Tousignant says he started the club after surviving the September 11 attacks on the World Trade Center, where he was attending a breakfast meeting (MS). He previously co-founded and sold Multex, an investment research firm. A basic membership in the club required a $70,000 one-time payment, plus $8,000 annual dues for a minimum of 14 days of access to $1 million residences. Prices could climb exponentially for longer breaks at more expensive properties. A "Platinum PLUS" membership in Ultimate Escape's Elite Club cost $450,000, according to the club's website.
Sales at such clubs flourished during the boom, rising to a peak of $610million in 2007 from $450million in 2004, according to Ragatz Associates, a resort real estate consultant. Collecting mansions around the world left some clubs with too much debt and too few fee-paying members after the bust. High Country Club, Solstice, and the Lusso Collection went bankrupt before Ultimate Escapes. The industry's sales tumbled to $195million last year, Ragatz says. Some clubs, including the biggest membership-only group, Exclusive, are growing, says Levi Moe, founder of Destination Club News, an industry newsletter.
Members of bankrupt clubs may have trouble getting their money back. Many, including Ultimate Escapes, are structured so members don't actually own interests in the club's properties. "They get treated like kings, but if the developer gets into trouble there's no recourse," says Howard C. Nusbaum, president of the American Resort Development Assn. "If the club goes bankrupt, members have to get in line like any other unsecured creditor."
The bottom line: The destination club industry, a luxury product of the financial boom, is finding it hard to survive in leaner times.