There has been a dramatic shift in the vacation home market over the past 20 years, which intertwines with the private club and golf club industry. The current market conditions will hasten this shift.
In prior years, the goal of many families was to have one or more vacation homes. In most circumstances, these vacation homes included golf community homes, mountain cabins, lake homes, ski cabins and/or beach homes. Second homes slowly evolved into third and fourth homes. Additionally, the square footage of vacation homes gradually increased. The cost of owning and maintaining second, third and fourth vacation homes was justified due to the traditions and memories that were associated with family vacations in these homes and the likely appreciation of the real estate.
However, as the cost, expense and time associated with owning and maintaining second, third and fourth vacation homes became more burdensome, families began to reevaluate their alternatives. In some cases, the children grew up, had their own families and extended family gatherings became more difficult to arrange. In other cases, families did not want to return to the same location each year. Finally, in other cases, the time and expense associated with the maintenance and repair of a vacation home outweighed any benefits derived. Adding insult to injury, as the real estate market flattened or, in many cases, declined, any economic benefits associated with owning second, third and fourth homes were eliminated. As a result, families began to explore other alternatives.
In response to these problems, a number of new products flourished in the industry, including timeshares, condotels, vacation clubs, residence clubs and resorts. Each of these products has its pros and cons. Clearly, no one size shoe fits everyone. However, depending upon the needs of each family, one or more of these options became a viable alternative.
Private club residence programs
One new product that emerged is the residence club. As with most products, residence clubs come in all shapes and sizes. Some are straight non-equity clubs with non-equity membership programs. Other residence clubs are points based. Regardless of the structure, the typical residence club gives the member a fixed number of nights per year at a variety of residences or resorts located around the world. Most residences/resorts have on-site amenities. Other residences or resorts have access to local amenities such as golf, hiking, tennis and other related facilities.
Regardless of the amenities available, residence clubs generally offer all of the benefits associated with second, third and fourth home ownership, without the burden of owning and maintaining the facilities. Depending on the level of service demanded, there is a vast array of products available, ranging from full concierge service to more modest accommodations.
The newest product to emerge in this area is the private club residence program. In its simplest form, it’s a private club within a number of other private clubs. This type of product is attractive to more discriminating buyers who demand a private club experience. The typical model involves the formation of a private residence club that owns or leases private residences at a variety of locations around the world. However, unlike other residence club programs, these residences will be generally located within private clubs and will include a membership in the private golf club attached to the community. For example, the initial membership price for a 30 year membership in a private residence club program may cost $500,000. The membership price is fully refundable at the end of 30 years or, if the membership is resigned prior to the expiration of 30 years, upon the reissuance of the membership. The membership allows the holder to stay up to 90 nights in any of the club’s residences around the world. Additionally, the residence club membership includes a membership in each of the golf clubs owned by or affiliated with the residence club.
To evaluate whether the residence club membership is worthwhile, if a separate golf club membership were acquired in each one of the golf clubs, together with a separate real estate interest in each one of the residence clubs, the purchase price would far exceed the initial membership price for the membership. Further, by providing that the membership price is fully refundable at the end of 30 years, residence club members are protected from down-side fluctuations in the real estate and golf markets. Since these types of programs generally involve private clubs, service is generally at the highest level.
Club reciprocity
This new innovative product provides opportunities for existing golf clubs to increase utilization of the clubs. There are two additional emerging golf industry trends. The first is reciprocity with other clubs and/or extending playing privileges with other clubs. The economics associated with owning and operating a private golf club are drastically changing. In almost all circumstances, private clubs recognize that they have excess capacity, especially during non-peak times. Furthermore, members are demanding greater flexibility in playing privileges at affiliated golf courses or other golf courses located in the same geographic area. For multicourse owners, this situation presents a unique opportunity in that they can generally make all of their clubs available to the members and provide reciprocal playing privileges. For clubs that are not owned by multicourse owners, the clubs generally must enter into reciprocal playing privileges agreements with affiliated clubs. In almost all cases, appropriate safeguards and protections are put into place to ensure that clubs are not overburdened and that substantially all of the privileges of membership in the home club are preserved.
Multigenerational privileges
Another trend is the availability of multigenerational privileges. The golf industry has long promoted itself as a family sport. However, there are a number of factors that deter families from participating in golf and/or that make it prohibitive. These factors include the relatively narrow definition of family members within the bylaws and rules and regulations of most private clubs, the relatively high cost of guest fees and restrictive tee times when guests are not allowed. In response to this problem, many clubs are allowing members to elect to expand the definition of family members and extend golf privileges to multiple family generations. For example, a multigenerational membership program may allow the member and his or her spouse, together with their adult children and their respective spouses and children under the age of 22 (who are living at home or serving in the military or attending school on a full-time basis), to have full golf privileges. In exchange for these expanded golf privileges, the member is usually required to pay an additional membership fee and/or additional monthly or other periodic dues. Although there is an additional cost associated with these expanded privileges, members are usually willing to bear this additional expense if it provides them with the flexibility to truly include their family members in the golf experience.
The emerging trends and changes that are taking place in the hospitality and golf industries are in response to market conditions. These changes generally provide consumers with a wider variety of products to select from and enhanced benefits.
Van A. Tengberg is a partner with Foley & Lardner LLP, where he is managing partner of the San Diego and Del Mar offices, co-chair of the Hospitality, Resort & Golf Industry Team and chair of the firm's West Coast Real Estate Practice. He is also a member of the Real Estate and Finance & Financial Institutions Practices and the Sports Industry Team. Tengberg's practice centers on real estate acquisition and development, with a primary focus on golf course and resort facilities, shopping centers, hotels, office complexes and industrial business parks.
William C. Guthrie is a partner with Foley & Lardner LLP and is a member of the Real Estate Practice and the Hospitality, Resort & Golf Industry Team. His practice focuses on the condominium, resort and hospitality industries.
