In a report entitled "Ernst & Young's Top 10 Thoughts on the Hospitality Sector in 2008", the advisory firm commented on the trends it sees for destination clubs, condo- hotels and fractional over the coming year.


Commenting on fractionals the report notes:

"The credibility of a well known professional operator and sales team, in addition to the flexibility of an exchange program, allows owners to trade time in any destination where the operator has a property and makes these programs more appealing than those offered by independent projects."

We agree that having a fractional exchange program is important, but as in all real estate the key thing for any buyer is that old adage "location".

Destination Clubs

Commenting on the clubs, the report notes:

"Faced with affluent members who expect luxurious residences and world class services in an ever increasing number of attractive vacation destinations, operators are refining their facilities to suit the needs of this demanding clientele best."
"Because they need to be well capitalized to achieve a critical mass of members and locations, it is anticipated that the consolidation of destination clubs will continue in 2008."

Size can certainly help in the destination club market. Bigger clubs can offer more homes and destinations to members and can take advantage of their scale to buy properties or develop their own properties at advantageous pricing. However, not everyone wants to be part of one of these larger clubs, and there is very much a place for niche, boutique smaller clubs. SherpaReport certainly agrees with forecast that there will be more consolidation over the coming year. We're expecting a big announcement on this front in the near future.

"Other trends anticipated in the sector include refinement of the ratios of destinations to members, cancellation terms, and a general movement towards non-equity structures."

Most of the clubs have revised their membership plans over the last year and now offer a wide selection of plans with varying numbers of nights of use. Some members may have as little as 7 night of use, while others may have as many as 75, so With this diverse membership plan structure, it is much more important for prospective members to look at the actual occupancy usage for homes. For instance during the winter, a clubs ski homes may be booked nearly 100% of the time, but will be quieter in the spring and fall. Read our "Guide to Destination Clubs" for more questions to ask as a prospective member.

As a general rule the most common non-equity structure is for clubs to offer 80% refunds of the membership fee, when a member resigns from the club. This is the base level and some clubs do offer a more generous structure.

This section of the report ends with:
"In summary while the various second home hybrids are expected to be tested by a softening US housing market in 2008, the underlying fundamentals of the baby-boomer generation - their upcoming wealth transfer and the time to enjoy it - will lead to continued growth and metamorphosis of the sector."
The full report is available at