10 Questions With PRC Pioneer, Steve Dering

Steve Dering is a co-creator of the PRC concept who conceived and launched the Deer Valley Club, the prototype for today's high-end fractional properties. Dering has since founded Destination Club Partners, a Park City, Utah-based advisory firm specializing in the design, sale, marketing and operation of PRCs. Dering works as the lead development expert, evaluating potential club sites, conducting preliminary business discussions, assessing project feasibility, formulating club membership parameters, and supervising club design and marketing planning.

RC.COM:
You're credited as the pioneer of the country's first residence club at Deer Valley Resort in Park City, Utah. What was your role in launching the Deer Valley Club (DVC)?

DERING:
In the late '80s, a partner and I created the residence club ownership concept after many months of planning, revising, searching for money, negotiating and more attorney meetings than I care to recount. We had researched a variety of resort developments and various real estate ownership and club membership structures. We eventually entered into a partnership with a successful New York developer and then obtained a large financial commitment from a Japanese corporation. Based on the Japanese financial commitment we launched our marketing for the Deer Valley Club and generated reservation deposits totaling more than $10,000,000 in sales for a new, unknown, unproven ownership concept. Unfortunately, in 1990 the Japanese abandoned the U.S. real estate market. We lost our financing and had to give everyone's money back. Our New York partner turned his attention to a very large project in Manhattan and it looked like our new real estate concept was headed for hibernation. However, at the encouragement of Mr. Edgar Stern, Deer Valley Resort's owner, I met with the developer of a condominium project across the street from the original Deer Valley Club site and convinced him to sell his product our way. We sold out the project as the country's first private residence club.

RC.COM:
What inspired you to conceive the concept?

DERING:
After the extraordinary experience of serving as Deer Valley's first marketing director, I decided to start my own advertising agency, which is still chugging along 20 years later. The majority of my clients were Deer Valley real estate developers. I discovered that many Deer Valley homeowners only used their multi-million dollar luxury vacation homes five or six weeks a year. We decided to create an alternative form of ownership that provided the quality that Deer Valley buyers desired, the amount of vacation time they needed, more services and amenities than any other real estate, and an ownership price that was proportionate to the annual use.

RC.COM:
Certainly, there was a lot of deliberation at the roundtable before moving forward with DVC. What expectations did the planning participants have and how did those play out through the life of the project?

DERING:
There were a variety of challenges that had to be overcome, including skepticism about whether high-end buyers would accept the concept. On the technical side, we had to decide how ownership would be evidenced and, most importantly, how the club reservation system would work. The other complexities that had to be addressed are too numerous to describe.

RC.COM:
In today's real estate market, residence clubs are differentiated from timeshare products, yet still often mistaken as timeshare. When you were marketing DVC in the early '90s, how did you overcome the timeshare label?

DERING:
First of all, our price point separated us from timeshare. We were selling our ownerships for more than $100,000 in the early '90s. However, this did lead one prospect to describe us as "timeshare on steroids." In our conversations with prospective members, we compared the Deer Valley Club with prestigious equity country clubs, noting that rather than reserving tee times, members reserved luxurious ski-in, ski-out town homes that they owned. In fact, one of our early advertising headlines was "Finally, a country club for skiers." We were fortunate that Deer Valley was the perfect resort at which to launch the concept and claim that position in the marketplace.

RC.COM:
Aside from evading the reputation of timeshare, what other obstacles did you encounter and how did you progress past those challenges?

DERING:
Other than the fact that no one had ever sold this form of real estate ownership before, perhaps the single biggest challenge was figuring out how to equitably allocate the high demand vacation times among the members. Obviously, with a ratio of seven owners per town home, every member could not be at the club during Christmas. To solve this, I created a rotating priority reservation system that gives all members equal access to the prime times over the years. It has proven to be very fair and has worked well for more than a decade. It's interesting to note that the members do a remarkable job of spreading their club use throughout the year. We found that for almost every family that was dying to be at the club during holidays there was another family that had no interest in being away from home during Christmas.

RC.COM:
What features of DVC did the market most embrace?

DERING:
It varied among members. Clearly, the ski-in, ski-out location was important. But equally important was worry-free ownership. Members love the fact that they can leave all their ski gear at the Club, be picked up at the airport, driven to Main Street for dinner, have hotel services and not be bothered with maintenance hassles. Some of the comments we heard from members and have used in our marketing include, "The only thing I have to worry about is when I'm coming back" and "Why would you buy anything else?"

RC.COM:
DVC reached sellout in the mid-'90s, but only in recent years has the PRC industry gained considerable recognition in the real estate community and experienced significant sales growth. In your opinion, why didn't more resort developers immediately emulate DVC?

DERING:
I think it was because many luxury vacation home developers and real estate brokers dismissed us as timeshare and did not want to be associated with it. It took a while for them to learn that our buyers can afford multi-million dollar vacation homes but opt for residence club ownership because it makes more sense for them. Developers eventually realized that residence clubs were a profitable way to fill a market niche at the high end.

RC.COM:
The industry is now intensely expanding with numerous competitors including hospitality brands like Ritz-Carlton and Four Seasons. To what do you attribute the shift in thinking and/or the popularity explosion for hotel companies and other developers to build PRCs?

DERING:
Five-star hotel developers are discovering the wonderful synergy that exists between a luxury hotel operation and residence clubs. The hospitality component for the club is in place, repeat hotel guests are the most targeted market for the club, the brand creates credibility for the ownership concept and confidence that the service level will meet expectations. Increasingly, we are being approached by developers of boutique, five- and six-star hotels who want to add a club component to their projects. Club real estate profits reduce the hotel debt and club members are intense users of the hotel's food, beverage and spa operations. On another note, some ski resort towns are now discouraging the development of condominium projects and encouraging residence clubs. The local governments realize that luxury condos sit vacant a majority of the time and contribute little to the local economy. Our clubs typically have a much higher occupancy than surrounding hotels.

RC.COM:
Since completing DVC, you've partnered with many residence club developers. What did you implement at DVC that you changed for future projects and what do you still apply today?

DERING:
We approach every project with a blank slate. One of the mistakes we see in the industry is developers taking industry averages for pricing, unit design, owners-per-unit ratios and reservation procedures and applying them to a specific location. Others have tried to market residence clubs with a timeshare mentality with disastrous results. Our approach is to replicate luxury vacation home ownership in the specific club location. We designed The Phillips Club in Manhattan much differently than our ski resort clubs or The Tucker's Point Club in Bermuda. Each has a unique seasonality, use patterns and residence design requirements. So I guess one thing that has remained the same is our concept of replicating vacation home ownership in a particular location. Ironically, this is the thing that compels us to do things differently at almost every club. The constants are the quality, service levels and abundant and flexible member use of their clubs.

RC.COM:
A looming concern of the real estate community is whether or not PRCs will follow the depreciating values of timeshare. What have you witnessed in your experience and what are your thoughts on the future of PRC membership values?

DERING:
Timeshare is essentially the pre-purchase of vacations. It's a good product if it is well managed and buyers retain ownership for five to seven years. The rapid depreciation of timeshares is due to the 50% marketing and sales costs and the lack of resale avenues. Our claim at Deer Valley was that we were selling real estate and that was proven when some early buyers at Deer Valley sold their memberships for twice what they paid. In Steamboat Springs, memberships in our final phase are selling for about $140,000 more than the initial pricing. As the number of residence clubs has grown, market awareness has increased and membership prices have climbed. This has enticed traditional real estate professionals to sell developer-owned memberships as well as resales, which supports prices. Ultimately, however, resale prices will depend on the quality of the club, the satisfaction level of the owners, and the local real estate market.