18 | FRACTIONAL EXTRA WORDS | David M. Disick
BUSINESS
www.opp.org.uk | DECEMBER 2011 Funding fractions
In the second of three keynote articles on the ins and outs of fractional fi nancing, American expert and author David Disick of
TheFractionalConsultant.com discusses the problems surrounding how to go about putting a convincing plan together.
f you followed my fi nancing advice in last month’s OPP, you are now ready to get to the negotiating table and present your business plan. Here are some key issues to consider: A. Executive Summary: Present briefl y in two to four pages the basic facts of the deal and its fi nancial highlights, especially the return of and on investment. B. Feasibility Study:
I
Cite historic and current real estate data showing that the demand for vacation lodging is greater than the supply currently available and there is a market need for your development. Offer projections of future visitor growth, and cite demographic and psychographic reasons for this expected growth. The study needs to present fractional and whole ownership real estate closing prices in your area—both recent past and present—to demonstrate that there is good reason to believe the project will compete successfully against primary, secondary and tertiary competitors. Maps showing accessibility to feeder markets, charts illustrating growth trends in the area and real estate trends should also be presented. C. Description of Project: Describe the property to be developed. This should include: location and size of the land-parcel, its ownership or terms of its control, proximity to vacation attractions, proposed number of units and size of units to be developed, amenities to be offered, status of permits and so on. Include pictures, site maps, renderings,
fl oor plans, unit plans and elevations, etc., as appropriate, D. Owner Usage Plan: Describe how the usage plan/ reservation system will respond to the vacation patterns and needs of prospective owners.
E. Marketing and Sales Plan: The success of your development depends substantially on effective marketing and sales programmes. Describe the demographics and psychographics of the target audience. Create a market positioning statement that conveys the unique vacation benefi ts and services that the property
“Show a base, best and worst case projection and how unexpected events will be handled”
offers to owners. Present a detailed strategy for appealing to your target audience across multiple channels— website, email, social media, local programmes, broker programmes, co- marketing initiatives, public relations and others. Estimate what percentage of sales will result from each marketing initiative. Set up systems for calculating the cost of each program and measuring response from each. Cut back or eliminate programs that are found not to be cost effective.
And establish your average expected sales price and calculate initial pricing and anticipated price increases. Include in your sales price the cost of incentives to help close sales.
Determine your marketing and sales goals too. Create month-by-month spreadsheets projecting anticipated marketing and sales response. Describe what sales training will be
offered, what incentives will be offered to sales people and how the sales team will be managed. Finally, include descriptions of how all programmes and personnel will be monitored so as to ensure prompt feedback and cost- effective operations. F. Financial Projections: List your “Sources of Funds”. This category may include: Developer Investment, Outside Capital Investment and Sales Revenues. List your “Uses of Funds”. This category may include: Property Acquisition(s), Construction, Marketing and Sales, Professional Fees, Financing Costs and General and Administrative. Projections need to be made by year and also spread by month. And show line item detail for each sub- category under Sources or Uses. It is essential to footnote the assumptions on which your projections are based. Otherwise, your projections may lack credibility, and bankers may relegate your presentation to their circular fi le. On your overall fi nancial summary sheet, present your total Sources of Funds and subtract from it the total Operating Cash Flow. The result will show distributions available to outside capital and to the developer. And always remember Murphy’s Law: “If something can go wrong, it will.” It is essential, therefore, to anticipate problems that may arise and
David Disick is president of The Fractional Consultant which helps developers in the U.S. and abroad secure fractional fi nancing.
www.TheFractionalConsultant.com
show how you plan on dealing with them. Your projections need to show a likely “base case,” a “best case” and a “worst case” along with how unexpected events will be handled. G. Track Record:
Demonstrate the relevant experience of the team and associated professionals and cite their track records of success. H. Investment Risks and
Measures Taken to Mitigate Risks: Cite relevant risks that may affect the success of the development such as unanticipated weather events, price rises, market changes, construction delays and so on. Include measures you will take to mitigate risks to the banks’ investment. This may include: frequent monitoring of all operations so that small problems are not allowed to become big ones; maintaining suffi cient contingency funds to cover unexpected expenses; carrying suffi cient insurance; and so on. I. Home Owners’ Association (HOA) Budget: Present an HOA budget suffi cient to ensure that the property will be maintained and operated in a way to preserve its market value. This mitigates some lender risk and protects against owner dissatisfaction that can lead to mortgage defaults.
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