This early entrant in the destination club sector suffered from too many first mover mistakes. The petition for involuntary Chapter 7 bankruptcy was filed in Colorado District Court at the end of May.
When we spoke to CEO Ron Tapp back in March he told us Portofino was undergoing a restructuring, but since then he hasnt returned our calls. At the time he said that the club was working on getting to a balanced budget where dues cover operating costs. The club was scheduled to hold a members meeting in April, at which stage Ron was hoping to ask members to put in more capital and convert to equity owners.
Ron was pretty frank back in March, indicating that the club needed to get to a point where it's membership sales covered both its real estate acquisitions and its marketing costs, implying that it had never got its budgets right. In addition the club had set its annual dues too low from the start and Ron noted that the membership agreements limited how much it could raise the dues so that the club couldn't get to a positive cash flow.
As a comparison of how low Portofino had set it's fees, the 15 day membership in Portofino Club with $2.5m homes had initial dues of $115,000 and anuual dues of $8,900. In comparison the 14 day membership plan in Ultimate Escapes Elite Club, with slightly more expensive $3m homes, is $200,000 with anuual dues of $17,500. Suggesting that if something looks too good to be true then maybe you should dig a little deeper.
Chapter 7 is a liquidation bankruptcy in which the court appoints someone to sell the companys assets and payoff the creditors. In the current case the creditors appear to be mainly members of the Signature club, a small destination club based in Washington, with which Portofino merged in 2006. The members are looking for repayment of their member deposits.
As we noted in the earlier article on Portofinos troubles, destination clubs can be the right fit for a lot of affluent families, but given this is still a relatively new sector some of the early movers in the space got their business models wrong. If youre looking at joining a club make sure to do your financial due diligence, in addition to making sure the club is a fit for you and your family. Our Guide to Destination Clubs includes several questions to ask the clubs.