This is what goes wrong when you play with people's money, and is a prime example of why we are where we are regarding the economy. This company operated with Abercrombie and Kent, a high end travel company based out of England. A&K has since terminated their agreement with Tanner and Haley. Former members have filed a lawsuit that is reported to be in the millions.Financial News
Tanner & Haley Bankruptcy Incenses Timeshare Industry
Wednesday, August 23, 2006
Glenn HaussmanWESTPORT, CT – When Tanner & Haley Resorts filed for bankruptcy protection earlier this summer, it put into question the business model in which the emerging destination club industry is based. Now the company is struggling to continue serving its 874 members even as it recently disclosed it suffered an operating loss of
$64 million in 2005.
Just last week its founder and CEO Rob McGrath resigned and casting further down on the viability of Tanner & Haley, which enticed prospective members to join one of its three clubs with luxury vacations in such places such as Aspen and Cabo San Lucas.
To join destination clubs such as Tanner & Haley, new members provide the club with a deposit ranging from anywhere between $80,000 to more than $800,000 depending on the club. While consumers are promised they’ll receive the money back (less an administration fee that could be as high as 20 percent), this bankruptcy puts those deposits in peril for Tanner & Haley members. However, most clubs don’t actively market that members wanting to leave the club must wait for three new members to join. Additionally, members pay annual maintenance fees and daily use fees for access to each company’s luxury homes.
Many destination clubs base financial models on maintaining their homes with annual dues while member deposits are invested in real estate, which is then owned by the club rather than individual members. The club banks on the appreciation of real estate to make money.
Though the media and consumer market has lumped the destination club industry in with timeshare, it’s not an accurate assessment. Whereas timeshare has a real estate ownership component, destination clubs do not. So while timeshare or fractional owners actually own a portion of a deeded property, destination club member own nothing but the right to stay in their respective club’s homes.
And because destination clubs have been so closely linked with timeshare, the timeshare industry has been rallying for years to put into place consumer protections. At the American Resort Development Association’s (ARDA), President Howard C. Nusbaum has always feared that if and when one of these clubs went broke, the headline would read “Timeshare For Rich Fails,” casting a negative light on an industry that has worked diligently to foster a positive image. According to Nusbaum, when a destination club fails, the timeshare industry suffers.
“We believe this business model is fundamentally flawed,” Nusbaum told Hotel Interactive. “It is based on speculation [of real estate]. That scares us.”
Tanner & Haley got into financial hot water because of its guarantee to allow members to stay anytime, anyplace in one of its homes. If that home wasn’t available, the company would have to rent a suitable alternative, costing Tanner & Haley dearly as it scrambled to satisfy member demand by entering into costly short term leases.
Nusbaum is calling for the industry to be regulated like timeshare and have appropriate consumer protections. For example, he believes non-equity destination clubs should be required to have a third party insurance vehicle for membership reimbursements in case a club goes bust and also to be more transparent with their record keeping.
“We love entrepreneurship and we love new ideas, but we need to make sure promises that are made are promises kept. This model has no failsafe,” said Nusbaum.
Dr. Wayne Thorburn, CEO of the Texas Real Estate Commission and Commissioner of the Texas Appraiser Licensing and Certification Board agreed with Nusbaum’s assessment. His organization oversees and licenses all real estate transactions in the state, including any timeshare products that are to be sold or promoted directly to people in Texas.
He believes the destination club model does have its compelling side since it provides access to multi-million dollar homes and luxury hotel amenities, but insists regulation is necessary. He is calling for new rules to be put into place either under existing timeshare acts or separate legislation specifically written for non-equity clubs.
“It’s a little dangerous to be playing the real estate market and think appreciation of real estate is the way to make money,” said Thorburn “I am not surprised something like this happened.”
On its website, Tanner & Haley the company said it intends “to continue to meet substantially all travel commitments previously made to Members and to continue to provide Members with a wide range of destinations and services.”
The notice added they will use the Chapter 11 process to “stabilize the company’s finances, put the company on a sound financial footing and develop a more viable business model.”
In a press release issued in conjunction with the bankruptcy filing announcement, Holly Felder Etlin, a Principal at XRoads Solutions Group LLC, was named Chief Restructuring Officer, a new position. She said: "As part of the Chapter 11 process, we will be reviewing and, where appropriate, revising Tanner & Haley's business model so that, upon completion of the financial reorganization, the company will be better positioned to achieve long-term strength, stability, profitability and growth. We are also committed to having the company emerge from the process with greatly enhanced corporate governance and financial transparency."
Lawsuit claims luxury travel company Abercrombie & Kent duped timeshare investors
Associated Press
2:47 p.m., Sunday, July 29, 2007 LOS ANGELES -- Luxury travel company Abercrombie & Kent has been sued for allegedly duping investors into spending millions of dollars to join high-end vacation clubs that were not run by the tour group as they had believed.
The plaintiffs claim they lost their investments -- $100,000 to $1.3 million -- after the operator of the clubs went bankrupt. They said they would not have invested in the clubs had they known they were not run and operated by Abercrombie & Kent, the lawsuit said.
"The reason most of my clients bought into this club was because A&K has an excellent reputation, they assumed A&K was managing it," said plaintiffs attorney Brian Kabateck. "These people were misled and they've lost their money."
An after-hours call to Oak Brook, Illinois-based Abercrombie & Kent was not immediately returned.
The lawsuit said Abercrombie & Kent allowed other travel companies, Complete Retreats and Preferred Retreats, to use its brand names in connection with the marketing of destination clubs.
The use of the Abercrombie & Kent name in promotional materials misled investors, the lawsuit says, into believing the clubs were operated by the luxury travel company.
Abercrombie & Kent declined to comment on the litigation, but said it ended its relationship with Preferred Retreats and a Complete Retreats subsidiary in June 2005. The company maintained the licensing agreements required that all prospective members be informed that Abercrombie & Kent was not involved in the management or the operation of the clubs.
The lawsuit, filed Thursday in Los Angeles Superior Court, claims intentional misrepresentation, negligence and violation of the California unfair competition law and seeks an unspecified amount in damages.
Membership in the travel clubs would have allowed participants access to luxury resort residences, yachts, private jets, luxury cars and other amenities, the lawsuit says.
