On the Frontiers of the Industry
By Carl G. Berry

Read page 1
Read page 2

What Consumers Should Know About Shared Vacation Ownerships
By Carl G. Berry

Consumers are still “baffled” by the various vacation opportunities offered in today’s changing second home/vacation club marked. To simplify matters, we present a concise question and answer platform to help consumers decide what kind of product best suits their needs. These are beginning questions to help consumers sort out the wide array of information available from web sites, developers and consumer advocate groups.

1. When owning your vacation property, how important is the security of your investment to you?
The most solid shared resort ownership model is a fractional purchase. It fills a void for both consumers and developers: it has a great image; it offers a variety of products and locations; and many major hospitality brands have jumped aboard. It is fully deeded and secure, just like any other form of real estate. The bottom line is that it meets a need and it works! Today’s Fractional Real Estate Owners and developers have benefited by the legal frameworks designed for Timesharing: they are protected with deeds and title insurance, have the ability to obtain consumer loans; they can even re-sell their property.

2.How important is vacationing in various locations to you?
Multi-site clubs (Destination Clubs) such as Exclusive Resorts and others offer members many geographical locations for their use. Many of these properties are in the most popular vacation destinations in the world. However, most frequently, club members do not have a deed to the real estate interest backing up his/her membership.

3. Do you want to own real estate?
Those who buy a membership in a multi-site club are just that, “club members.” They do not own real estate. Those who buy a real estate interest in a private residence club or high end fractional property are owners and members of the owner's association comprised of all the owners at that project. In other words you own your property even if it is just a portion. You are represented by a board of directors of a Homeowners Association.

4. Do you want to ensure the value of your purchase?
If you are comfortable with a country club style membership which provides luxurious vacations, then a destination club can certainly meet your needs for an expensive buy-in fee. Whatever type of membership or ownership you choose look for credibility in a developer. What have they done before? With who are they associated? Do they know the area? Have they honored the buy-back commitments outlined in contracts? Are your annual dues or fees going to support club operations or are they going to pay the mortgages on the homes in the program? All these elements are keys to a strong, secure investment.

5. What are you looking for in vacationing?
If you are out shopping for vacation products, what should you look for? Since it is real estate, the first component is always location in a popular vacation destination area. Be sure to decide on the area that fits your family’s needs. Are they skiers? Shoppers? Hikers? Swimmers? Art Lovers? Sightseers? Spa goers? Make your choice wisely and you will be happy with your investment in your leisure time.

What does it take to be a Turnaround Leader?
The Stalled Project

By Ron Frank, RRP
Corporate Vice President Sales
Star Resort Group

This article is based on an interview held with Dr. Rosalind Wilson, for the MBA Course, “Managing Corporate Turnaround” at The London School of Business.

From a marketing and sales perspective, making projects work has many intangibles. There is a fine line, many times, between success and failure. Rarely, is there total failure. Usually, there is a period where sales goals have not been achieved, but where the project has 'good legs' and it needs specialized talent.

Turnaround leaders deal with both tangible (finances, operations, strategy, process improvements) and intangible (leadership, team changes, coaching, development, cultural change) elements simultaneously. This blend is evident throughout the entire process and this duality of the role of the leader is critical for success.

My experience at turning around a stalled project is in the resort/shared ownership industry. However, it is apparent that these lessons can be readily applied to most sales organizations.

The turnaround leader is an external catalyst for change – his/her arrival provides a focal point around which to distil the organization’s concerns. The turnaround leader singularly expresses the organization’s dissatisfaction with the status quo. Through their initial interactions and autocratic involvement they create a sense of urgency and awareness of the need to change. Finally, they help to drive changes by making the tough decisions, and eventually by refining the skills of the team. Eventually they may even reach the point when their involvement is no longer required.

Being a turnaround leader mirrors the entire turn around process. First, understanding, then breaking, then fixing the business in a new form is a succinct description of the turnaround process.

Leadership in turnaround balances judgements about performance and expectations. The turnaround leader must not only assess what is achievable with the available resources, but also communicate his/her findings both internally and externally. Internal communication is critical to get a stalled project back on course, while external communication is critical to manage stakeholder expectations. Thus the turnaround leader acts, on the one hand, as an agent of change on behalf of the stakeholders, and on the other, as a reality check for the stakeholders on behalf of the resources under his care.

Finally, leadership relies on i personal experience as in any other setting. The strength of a leader results from the way in which their combination of practical skills and experience are applied to the problem. This, in turn, is driven by his/her personal style and qualities.

The Nature of Leadership
There are major differences between managers and leaders. Managers manage tasks that can involve people; leaders lead the people who manage those tasks. Managers generally have stronger analytical skills while leaders need to have analytical skills that are maximized by their social/people skills.

Managers can be leaders – and most often are to some extent. Managers who can also lead are themselves better managers.

The more you seek to advance in the corporate world the more leadership skills you need to develop.

The importance of leadership in changing the momentum of a stalled project is paramount. The leader of a turnaround assumes a significant level of responsibility and accountability for both the project and the team.

Turnaround situations in the resort business are the result of the project failing to meet its sales goals. Before the specialist is called in there have invariably been attempts to “turn the business around” using existing in-house talent and these have also failed. The line personnel are scared of losing their jobs and generally have been made promises that management has, for whatever reason, been unable to keep. The turnaround specialist enters a hostile arena. The personnel are cynical and sceptical of the “outsider” who now will be determining their and the company’s future.

Leadership 101
In a turnaround setting, there is a tremendous responsibility on the leader. If the wrong decisions lead to failure of the project then the leader has failed in their responsibilities. On the other hand, if those decisions lead to success then while the leader’s decisions were the right ones, the credit goes to the team because they have successfully executed the plan.

A true leader accepts responsibility and deflects praise.

Ingredients of Turnaround Leadership
Hands-on involvement from day one is clearly evident, involving an approach that is intended, not only to take control of the techniques that will stem the project’s losses, but also to send a clear message to the team about the leader’s role. The order of tasks may vary slightly depending on the prevailing circumstances. They usually encompass the following:

• Establish credibility with the team as quickly as possible – having a reputation helps
• Do not “sugar coat” the situation, either with the team or stakeholders. It is vital to identify the issues and look for solutions
• Determine the financial viability of the project
• Determine why the project is stalled or (more frequently the case) not living up to expectations – consider whether expectations are realistic
• Find the “skeletons” – look under every rock, be sceptical of all information, don’t take anything at face value
• Listen to everybody’s opinion – even if you know it is wrong
• Identify the staff that you think can be retained
• Determine which programs or products are profitable and which need to be cut, in the short term to stem cash burn and in the long term for the project’s future viability
• Look for redundancy in responsibilities to determine which staff cuts can be made without crippling the organization
• Determine if current reporting systems are accurate and supply the information needed for decision-making – if not, create reporting that accurately measures what you are trying to manage
• Stop the financial bleeding
• Look for corruption – kick-backs to vendors, phantom staff
• Create the plan (for short-term survival as well as long-term success) and determine, based on the human and financial resources available, how much you can accomplish in the shortest amount of time.
• Prioritize accordingly. Timelines are negotiated with the developer and this process often requires “upward management” to re-set expectations, which may also involve the lender.
• Set realistic goals that are time-bound and get buy-in from the developer and the team

• It establishes the absolute authority of the turnaround leader in all areas of the project
• It gives the leader access to all information on how the business is currently operating and the current status of the project
• It enables the leader to interact in a natural, day-to-day fashion with each department head – as opposed to a formal briefing – and helps to build rapport so that the leader can more quickly determine the value of the department head
• It shows the department heads that the leader is competent, or at least understands each person’s area of responsibility and the challenges they face
• By being “hands on” the leader shows they are “in the fight” with the team

• Integrity and acceptance of the fiduciary responsibility are critical to make the decisions to best serve the goals and interests of the company/client.
• Respond and not react. There should be no “knee jerk” reactions. When in doubt sleep on it, think about it, and be sure to detach your personality from the situation.
• Be confident and consistent. Confidence comes from training, experience and success. Only when you are confident can you be a risk-taker and that is part of every minute of the day for a leader. And you must be consistent with a clear-cut management style which your reward loyalty and results.
• Listen. At the same time, you must interpret the input from your team from an individual perspective as well as in relation to the project.
• Be human. Much of what you do comes from a very hard perspective so try to treat all with respect. You cannot have charisma without humanity and you cannot lead without charisma.
• Do not be deterred. The work is about solving problems and setbacks are a part of any project. Persist and develop the judgment skills to determine if and when it is time to press forward with the plan and when it is time to make a new plan.
• Exude enthusiasm and passion. Leadership is ultimately a transfer of knowledge and emotion, especially in the turnaround situation. If you don’t know what you are doing, your people will know and they will not respond with their highest level of effort.
• Pass on what you know. Your knowledge, activities and insights will always be valued.

White Paper on Mid-Tier Fractions
March, 2007

History
Mid-Tier fractions are not a new product. Maybe gussied up a bit, but they’ve been around for at least 20 years.

From the time second homes became accessible to the middle class, vacation homes have been purchased by more than one family. Back in 1972, doing research for Brockway Springs, which became the first, fee timeshare in the world, the records of Placer County, Lake Tahoe CA, showed that more than 30% of homes were owned by more than one family.

By virtue of timeshare documents fractions were able to ‘borrow’ those documents to overlay on a property to be sold in larger increments than timeshare weeks. The core benefit of those documents were that they: [a] guaranteed the rights and obligations of all owners, and [b] allowed a deed to be given to each owner instead of being a tenant in common.

In the purchaser’s view both these elements were of substantial benefit. Now, their investment could be safe for personal use and ownership. So, early timeshare developers who along with their lawyers, wrote and registered documents should be given credit for today’s explosion in fractions.

This process allowed us to develop 1/5th fractional interests in Sunriver, OR in the late 1980s for example, and for the Deer Valley Club to begin sales in the early 90s.

If history is the prolog. What's the future?

Definition: Levels of Fractionals
Dick Ragatz, in his seven-year work on fractions, has defined the different levels of fractions based on price per square foot of the 'units' sold. Under his definitions, less than $500 a square foot is a 'traditional fraction', $500 to $1000 is a 'mid-tier' and over $1000 is a 'private residence club'.

We suggest there may be other indicators to judge where a fractional product falls within definitional terms.

It is our inclination to distinguish between two not three levels. We would group 'traditional' and mid-tier' together and then have, in the second category, 'private residence clubs'. So, just ‘fractions’ and ‘private residence clubs’. And, from hereon out we’ll call them that.

Why? Certainly, 'private residence clubs' are a class apart with very high selling prices and equally high service levels. Other fractions, positioned to meet specific market demands are just that - 'fractional' projects. They have had all the attributes of their higher priced cousins save one just not the flash and sometimes not the same owner reservation plan.

Reservation Plans
In the early days of fractions, the reservations plan [how the time is use] was a fixed, rotating calendar. So, if a quarter interest was sold the owner would have every fourth week to use, and each year the use weeks would advance one week. The same being true for a sixth or eighth week share. On larger fractions this plan also benefited the rental agent if the fractions were to have a dual use.

As developers gained more experience with fractional projects it became common for some fractions have a flexible reservation plan. For that matter some private residence clubs now have both fixed and flexible reservation plans. In fact, today, some of the most innovative reservation plans are of the combination type. So, as frequently happens, as buyer preferences are better understood, the way these condos and homes are used is merging together regardless of price points.

Is one use or reservation plan better than the other? Not necessarily, but human nature continues to demand more flexibility in time use. Ragatz determined this by his research in 1982.

So, this assessment leads us to recommend two vs. three levels of fractions.

Tiers by destination
We might also look at the location in which fractions are developed. True destination resorts like Aspen, Stowe, Boca Raton, New York, etc. should have pricy and service intensive products that are in concert with the hotel options located there. It’s expensive to go there….a $105 dollar lunch for three in Vail last week for me, and no desserts! So, pricy locations = price real estate.

Regional resorts, by contrast, can be 'down home' and a fancy product may very well be out of place there. So, a fraction may be a better fit. Not all want overlays of service and expansive finishes and FF&E packages. One may want to let the kids roam and not be compulsive about breakage.

A project was built at Big Bear Lake outside of LA for the fractional buyer, but he finishes and FF&E were private residence clubs level. They lost sales because the buyer was ‘afraid’ to use the unit!

Demographics and Psychographics
Who buys the fraction? What are the motivations, the income levels, and do they have the same buying motivations as those who buy a private residence club?

The core element is discretionary income. Without it - no purchase. Discretionary income, naturally, comes in different amounts. A family income of $50k may allow the purchase of a timeshare.

Income levels of, say, $300k makes it easy to consider buying a private residence club share.

But, what about the in between levels? With all the competition for resources, (college tuition, primary-housing improvements, savings in general, and so forth) buying a vacation home more problematic.

So, one might say if not the whole vacation home why not just part of it? The obvious answer is that to some extent that is the answer. However, buying decisions are not based on just income levels and in this case disposable income levels.

The money to spend just opens the door so to speak. It's the physiological drivers that will allow a buying decision to be made.

Does the potential buyer see themselves as having 'earned' the right to a vacation home? How much does one value 'getting away' to the same place vs. a plethora of other family vacation choices? Are there kids at home, or are they empty nesters? Might the buyer be 'slumming' in their own minds by purchasing a fraction, or the eyes of those whose opinions they value? Or, conversely, if they own a timeshare is this just the next step in a series of smart steps to guarantee a rewarding, leisure lifestyle?

Many of the wealthy enjoy the idea of being thrifty and are thrifty; it shows they can save while keeping more. The middle-income folk have to save every day, every way, to meet their cash flow goals, so saving on a vacation home might not be what they want to do. It could be either the whole thing [really making it] or no ownership at all.

This is mitigated by the price of vacation homes. In the 'old days' one could buy a seasonal, vacation home for $30k. Now, that may be $300k or even $500k - forget the destination resorts where it's millions.

Those with a more modest income level can revel in the ownership of a timeshare because of the luxury it affords. Some wealthy buy timeshares because it shows they can be value oriented and 'smart' to their peers. Plus, it's a heck of a product anyway.

Some middle-income folk might consider a fraction if it comes with a rental/investment opportunity. This allows them to be smart and more diversified with their investment strategy while still getting some personal vacation use.

So, to develop a fractional project aimed at the middle income demographic and priced at that level may not be successful. One can say that it might take a finer marketing positioning for this type of offering that developing a very expensive private residence club.

Service Levels
What's expected of service? What price is one willing to pay for it? How expensive is it to provide?

Absolute luxury as provided by a few resort properties in the world is an expensive proposition assisted greatly if the resort is located off shore with low wages.

A resort can be built in a top location with excellent materials, well designed and constructed and that cost can be amortized over a number of years. The facility is one side of the two-edged luxury proposition. The other is service which means people; and people, unless in an underdeveloped area, are expensive.

As good a job as Four Seasons, Ritz, St. Regis and many independent hotel companies do in providing luxury they cannot be compared to their own foreign properties, where staffing costs are low. So, the staff to guest ratio is higher similar to cruise ships that are registered in foreign countries with foreign crews than in the U.S.

Can a homeowner's association offer real luxury as defined above? With the physical property, yes, especially if its sold on a fractional basis, so more money can be put into the physical property.

But, will the owners association pay the cost of staffing? More than likely, not. Owner associations are not known for their high rolling traditions.

In private residence clubs there are examples of service levels paid for and enjoyed; ski concierges and locker areas, heated boots, etc. Or, airport transportation via project-owned vans.

This is not the case with fractions where owners are more willing to do for them selves in order to pay, say, $4500 per year in dues vs. $12,000.

We make the case that no U.S. based private residence club can be a real five star property as defined in hotel ratings due to the personnel costs and the reality of HOA management policies.

So, coming down from that reality what service levels should a fractional project offer? The easy answer is: a service level commensurate with how service is defined by the buyer.

The buyer being middle income, for this example, say, a family income of $175,000, may once in a while splurge on a luxury night out, they keep luxury pretty close to their vests as they have so many other family-based costs. So, the Hilton, Marriott, Westin service levels are expected and accepted. By the way, nothing wrong with that!

The same goes for dining at, say, Ruth's Chris or Outback, or $4 drinks at Starbucks, etc.

It's an axiom for private residence clubs that the entry cost for the interest is not the deterrent, but it is the reservation plan and annual costs.

For the fractional owner the entry cost is important in addition to the ongoing costs, so that dictates, if the proper reserves are in place, that the service levels be defined to those that are necessary to run the resort but no extra frills.

Exchange
The draw of exchange is undeniably strong. If the fractional buyers see themselves as buying a vacation home vs. a travel product [timeshare] how does exchange fit in?

Intriguing, but not dominant in use. But, a very valid closing benefit. Exchange should be offered, but the developer should not expect to use large numbers of incoming exchangers as sales leads.

By having a vacation home to use throughout the year there is precious little time to exchange beyond personal use. By having a higher maintenance fee than a timeshare, there is less extra-disposal income to spend on getting to the exchange resort. So, we look for exchange, maybe, once every five years.
That usage pattern then dictates what the exchange company can charge for annual dues if exchange is not a frequently used option.

Marketing
What are the marketing messages to fractional customers? What do they want to know? How much of the story to tell?

The drivers are value, family, memories, and prestige.

1. Value for the money spent a wonderful vacation home larger and nicer than one might have chosen if they had decided to purchase a whole ownership home.

2. Family for the opportunity to provide quality vacations for the kids and/or grandkids to experience the alternatives to city life, and to engage in activities they would not have the chance to do in the city.

3. Memories for a lifetime.

4. Prestige for ownership of a real vacation home vs. a timeshare. Naturally, there can be some conflicting ideas working in this area as a timeshare can be seen as a great purchase and with a deed, just like a fraction, an investment in use and real estate especially in high demand areas like our projects in New York and San Francisco.

How do we reach them?
1. Internet marketing for sure. The challenge is to get the addresses, so linking with other businesses in the area or the major amenities is key. It’s very tough to be a stand-alone project these days; one needs an anchor, or a number of smaller anchors on which to base the marketing program. Easier said than done, but.

2. Area real estate agents may have Internet addresses – yes. But beware the lack of attention and performance. “Times may be a-changing” with them, but history has recorded only a few instances where local brokers really jumped on a project and made sales.

3. Collaterals in the form of take-ones, fulfillment, ownership information, FAQs, floor plans, building renderings, financing sheets, etc.

4. Lead tracking software through Salesforce or others.

5. Site display area[s]

As opposed to many private residence club buyers, most of these buyers have not owned a vacation home before. Therefore the materials must be more basic to extol the benefits of vacation home ownership.

Sales
How do fractional customers want to be sold? How long should the sales cycle take? What to close on?

This is a mid-cycle sale. Timeshare is a short-cycle sale, and a wholly owned homes are a long-cycle sale. The reason why fractions are not a long-cycle sale is that in the extended time period they may loose interest and decide not to buy. The reason fractions are not a short-cycle sale is that the buyer is spending more and making a psychological commitment to 'own' a vacation home, which will impact the life of the family.

Explaining 'why' a vacation home, and as a positive linking it to timeshare in concept, and then --as in every sale-- discovery is vital.

So goes discovery, so goes the sale. As we know the customer will tell the salesperson how and why the sale should go down.

Thereafter the key drivers will be the same as for private residence clubs: owner use and cost of ownership.

Both are delicate topics and the sale can be lost if either is not well handled. Nothing to hide at all, just the explanation has to fit the buyer's interest and retention abilities.

Consider this - if the customer is a family unit it is typical for one spouse to be more right brained and the other more left brained. It's the left-brainer that will need to be brought along more slowly as logic and detail are important. However, the left-brainer can get lost in the detail, so that's where the balance comes in.

Star Resort Group knows that fractions are the hardest vacation product to be sold. More so than lots, homes, condos and timeshare. It's easily understood, then, that qualified sales executives are the one personnel category in greatest demand.

How long should the ‘close’ take? That really depends on the sales person and their skills. We know of sales folk who get buyers to sign the docs and leave the holding check, say, $15k while on vacation. At the other end, which is the norm at this time, is the follow-up when home, and that process can take two weeks to three months.

Post Sale Management
Go to the Hilton, Sheraton, and Marriott model as cited above.

The annual dues as called for by the various state registrations should be in the $4000 range including reserves. Attentive staffing is a must.

Single Family Homes as Fractions
There is interest with many developers or homeowners to sell single-family homes on a fractional basis. Some comments:

1. A one -off home will not work. Many reasons. Call is if you want more info.

2. A colony of homes will work assuming they fall into definable categories, so the use can be flexible through all the homes for better owner satisfaction.

3. Marketing can be a challenge as there is not critical mass.

4. Getting the right sales team will be a problem for the same reason.

5. A local property manager will probably do management, and that can cause quality control problems. Even though customers may say they want a no-frills experience, once they own they will want more services, and the local property manager may not be set up to handle them.

Conclusion
The Fractional Product has much value in the vacation real estate market. In a world where there are so many vacation choices, this is a viable option that fits the needs of many consumers and can be profitable for many developers. It does take a finer tuned operation to execute successfully than a private residence club – in many instances.

Destination Clubs & Fractional Interests
April 18, 2007

Definitions
Resort Timeshare - Travel Product, sold in weekly increments, highly popular around the World.

Hotel – Condominiums - A condo sold with the expectation that a hotel company will manage it with the owner deriving rental income from that service.

“The xxx Residences” - Luxury condos usually developed by luxury hotel companies sold on a whole unit basis for personal use with hotel services.

Destination Clubs - Multi site operations that usually do not offer a deeded ownership, and where the sponsor holds title to the real estate.

Fractional Interests - A condo or home sold to more than one person, but less than a timeshare, bought for personal, vacation home use.

Private Residence Clubs - the luxury version of the fractional interest with 4* plus services.

Advantages of Fractions for the Consumer

Versus Timeshare 1. More of price to product 2. More probable appreciation 3. More time to use 4. More services offered 5. Higher quality product 6. Better image with the media 7. More exclusivity -fewer owners 8. Higher satisfaction

Versus Whole Ownership 1. Higher quality home for less cost 2. More services offered 3. Better management more intensive 4. Buy what can afford 5. Buy what can use 6. Can afford multiple purchases 7. Higher satisfaction

Advantages of Fractions for the Developer

Versus Timeshare 1. Better image 2. Fewer sales/shorter sales period 3. More $ to the product 4. More traditional marketing and sales 5. Less complicated and disruptive 6. Less need for J.V.

Versus Whole Ownership 1. Broader market 2. Easier sale due to price 3. Higher occupancy rates/mixed use 4. More ancillary income/mixed use 5. Higher profit due to mark-up

Differences Between

Timeshare Intervals per unit 52 Star level 3* to 4* Image poor with media Price $10,000 to $40,000 Income-eligibility - $50,000 Buyer motivation vacation purchase Size of project 50 to 400+ Sales presentations 200 units=100,000 Marketing & sales short cycle Marketing & sales costs - 45% - 55% Product costs - 20%-25% Sales cycle - longer Buyer receivables - yes = profit

Fractions Intervals per unit 4 to 12 Star level 4* to 4*+ Very good image with media Price $100,000 to $500,000+ Income-eligibility - $150,000 Buyer motivation - real estate purchase+ vacation Size of project 20 to 75 Sales presentations 50 units of 1/8=4,000 Marketing & sales mid-cycle Marketing & sales costs - 13% - 22% Product costs - 45%-55% Sales Cycle - shorter Loans directly to buyer

Making a Profit

Costs	Fractionals	Whole-Ownership
Product	50%	75%
Marketing	8%	3%
Sales	7%	6%
G and A	3%	1%
Total	68%	85%
Profit	32%	15%

What Seems To Be Working Best 
A. High-priced recreational real estate
Scarcity of such
High hotel rack rates
Upscale image
Good accessibility or proximity to marketplace
Year-round demand, or at least two high seasons
Prime site

B. Product
Brand or name recognition
High quality FF&E versus size of units
Equitable access to prime seasons
Appropriateness of fraction size, use plan and price (critical)

C. Ancillary Benefits
Services at luxury level
Exchange and rentals
Resales
Financing
Rational annual dues
Access to network

D. Delivery
Experienced team
Access to appropriate names/lists/clients
Subtle, but assertive, marketing and sales
Collaterals and messages
Proper positioning

Share Sizes	Fractions	Private Residence Clubs
Less than 1/12	6%	9%
1/12th	6%	21%
1/10th	24%	21%
1/7th	19%	35%
1/5th – 1/6th	17%	9%
1/4th	28%	5%

Reservation/Use Plans	Fractions	Private Residence Clubs
Set Weeks	9%	16%
Rotating Weeks	39%	16%
Rotating Priority	38%	54%
Hybrid	14%	14%

The data used in this report substantially came from Richard Ragatz & Associates research on fractional interests. 

      

Checklist for Fractional Resort Real Estate Success:  Top Ten Tips!

By Carl G. Berry

When resort real estate experts congregate in throngs to learn and share information about an exciting product, they are bound to come up with some guidelines.  A May 2006 gathering of nearly 400 resort and real estate experts at the Ragatz Symposium in Coronado, California was held in wrapped attention as their colleagues shared “dos and don’ts” about Fractional Real Estate for developers.

Fractional Real Estate projects (including Private Residence Clubs) increased by 218% say Ragatz Associates, internationally recognized as a leading market research organization in the resort industry.  Primarily, the rapid growth in this intriguing product results from the void it fills for both consumers and developers:  it has a good image; it offers variety of types of products and locations; many major hospitality brands have jumped aboard; and it is increasing in market acceptance.

So, if you are a developer considering fractional real estate,  what seems to be working best, you ask?  Well, it is real estate after all.  Logically, the first component is always location in a popular vacation resort area.  Secondly, a great location within the resort is always optimal.  If families can ski-in/ski-out, golf-in/golf-out, it is a bonus for all involved. 

After location, buyers look for credibility in a developer. What have they done before? With whom are they associated?   Do they know the area? All these elements are key to building a strong foundation with potential buyers.

Fractional Resort Real Estate is primarily residential in nature, so adjacency or association with a fine hotel and being able to draw on its services, amenities and dining opportunities boosts the value of a Fractional purchase.  It also makes it easier to draw potential clients who are already favorably predisposed to the on-site offerings.

Developers are urged to look at the traditional real estate offerings in the area.  Are there limited and/or expensive second homes in the vicinity that makes a fractional purchase an enticing venture for a family who would prefer to have the advantages of home ownership but not the hassle of keeping up a second vacation home?  Are homes in the location priced out of reach for even comfortably positioned second home buyers?

Your location must have year-round appeal or at the very least two strong visitation seasons.  A ski resort that offers no summertime activities or a lake that is inaccessible nine months of the year do not lend themselves to luxury fractional ownership.

If your fractional resort is the first one to hit the market, or has limited local competition, your chances for success are better, says research presented at the Ragatz Symposium.  Experts also say that proximity to a large affluent visitor base, along with urban centers helps put the stamp of pre-disposed success on a fractional product.

Another marketing assurance for a developer to consider is access to a data base which includes resort visitors and real estate prospects.  This kind of data base takes building a relationship with local brokers and tourism centers such as chambers of commerce, local attractions (e.g., lift tickets/greens fees), as well as the utilization of various internet sources.

Add a great history of the area (legends, tales of healing waters, golf greats who frequent the course) or story telling opportunities for the future (improvements, plans for the future, activities) to the mix and you have a recipe for success.

This check list for success is not only enhanced but solidified with a use plan which is designed around the buyer. Without that important look at your owner, all your hopes and plans and dreams can come to naught.

Keep this check list in mind while planning for your future success in the Fractional Real Estate world:

ü      Popular resort location

ü      Great location within the resort

ü      Developer credibility

ü      Fine hotel nearby

ü      Limited availability to second homes

ü      Year round appeal

ü      Proximity to visitor base

ü      Access to valuable data bases

ü      Great history or story telling opportunities

ü      Well designed use plan

Five Facts About Fractional Real Estate
By Carl G. Berry

1. Fractionals are here to stay
Fractional ownership has always been with us. Two or three couples team up to purchase a cabin by A clear mountain lake; a group of siblings opts to buy a seaside home to vacation together or separately; a ski chalet for one group of friends become a fall mountain retreat for another. Now the term “Fractional Ownership” has been formalized. Last March, Dick Ragatz of Ragatz Associates has reported at that more than $1.5 Billion in sales of Fractional Properties was achieved by this luxury component of the shared ownership industry.

Today’s Fractional Real Estate Owners have benefited by the lessons learned from Timesharing: they are protected with deeds and title insurance, have the ability to obtain consumer loans; they can even re-sell their property. Every major hospitality brand, from Four Seasons to Starwood to Ritz Carlton has given a commitment to Fractional Resort Real Estate. Star Resort Group, a sales and marketing organization in Phoenix verifies that nearly every mixed use development has a fractional component. There is no doubt that this permutation of luxury resort real estate works!

2. The most common share for high –end fractionals is a 1/8 share (6 weeks)
Fractional properties are akin to second homes; division of the share ranges from 13 owners per share to quarter interest shares (four owners per unit). However, research shows that most shares for upper end fractionals are six weeks, depending on location and use. The beauty of a fractional use plan is another buyer protection of sorts. Whereas the siblings who bought a home on the Gulf in Florida to share often come to blows about who gets to stay on the Fourth of July, fractional properties can allot the time fairly and equitably.

3. Consumer loans are becoming more readily available for fractional purchases 
Proof that fractionals are a readily acceptable niche in the market is the growing availability of consumer financing. Mortgages with rates similar to those on traditional homes are becoming more and more the norm.

4. Fractional projects do not have to be far from home to be successful 
Although many fractional projects are located in exotic destinations such as Punta Mita or Cyprus, the drive-to (or short plane ride) family vacation is still the most popular. Witness the popularity of ski resort destinations such as Tahoe’s NorthStar Club (a two-hour drive from California’s Bay Area) or the plethora of golf resorts in Arizona (within a short plane ride from most of the Western US). The idea that a second vacation home is easy to get to makes it usable many more weeks out of the year.

5.The niche of luxury resort real estate takes experts in Sales and Marketing  
Just because fractionals have distinct advantages in the luxury resort real estate market does not mean they are a slam dunk in generating revenue. This is not timeshare, nor is it whole ownership. While a buyer may intuitively want to purchase, nagging questions about the use of a fractional and what the ongoing annual costs may cancel out many sales if not handled with aplomb. Your choice of a team to run the sales and marketing is all important. Look to experts who have had experience and have made their own investment in fractional projects.