JANUARY 2012 |
www.opp.org.uk WORDS | Ioannis Verdelis Convert unsolds
We have all seen developers trying to convert their unsold overseas properties into a fractional scheme. And it makes sense. With few genuinely new developments coming onto the market, it should be possible for existing projects looking for a solution to their unsold inventory to go fractional. But is it really the good idea it seems?
rom my point of view, it’s great news that new developers are coming into the fractional market. But fractional isn’t the answer to all of their problems - and sometimes I notice that it’s hard to tell what their problem was in the fi rst place. So, I decided to answer some of the questions developers frequently ask me, as part of a new series of features for OPP on current sales strategies for the overseas property sector.
F
So, to start at the beginning of this particular issue: Do fractions work? A lot of developers have found fractional ownership to be a good money-maker in recent years, despite the very tough market that we work in. Developers who work with my company, Best International, retail more than £24 million annually, and we only really distribute a few projects at any given time. We have found that fractional offerings can, and do work. But not for every project.
In the whole ownership market, a project with good lifestyle (use) appeal will be in the right place, at the right time, and packaged correctly. A well- devised scheme will always sell.On the
other hand, of course, a badly devised scheme in a poor location may not fare as well. The same applies to fractional ownership. The proposition is just the same. Fractional can help a good product sell more; but it cannot turn a bad product into a good one. Developers sometimes package “investment” shared ownership schemes – such as fund structures, or alternative investments. These schemes have to be structured correctly, so
“Fractional can help a good product sell more, but it cannot turn a bad product into a good one”
they can be legally distributed to their target audience. Investors will look for genuine guarantees, and genuine projections – they won’t buy an “investment” with little security and questionable returns.
But what is the best size for a fractional offering? This is probably the most frequently asked question, and unfortunately a hard one to answer. Is your project a ski chalet in the Alps? Is
it a branded hotel in the Caribbean? Is it a commercial property in London with good yields? These products should be packaged differently to appeal to their target audience.
These people have different needs, and so the product should be designed differently. And as the distribution strategy would also differ, you will have to consider the needs of your agents and partners too. And, fi nally, don’t forget that a different distribution strategy may being you under different scopes of compliance and legal structures, so you have to think about these things at the outset.
Some products are distributed through the property agent / fi nancial advisor market that you may be used to. Even then, the importance of working closely with your agents and distributors, offering training, marketing, and administrative support is paramount. Developers have been successful at selling fractions as a “drop” product to their existing database, or in leading with a low price and working on up selling and cross-selling with the whole ownership proposition. Another concern that crops up regularly is “I’ve heard the legals can be complicated on a fractional development.” The answer is that they can be, particularly for the inexperienced, but they needn’t be. Don’t try and put together a fractional product using lawyers or trustees that have not done this before – you’ll be paying them to learn what others already know. Do your research … there are some very experienced companies in the industry that will assist you.
Work hard | and study who has been successful in fractional conversions, and why
And remember that you need to be sure that the product is structured correctly for the way in which you will distribute it. Some structures can only be sold via fi nancial advisors; others
Ioannis Verdelis works for Best International, helping developers create and sell innovative and successful fractional and shared ownership projects. He is currently working on projects in Central America, Europe, Africa and the Middle East. Contact him at +44 (0) 845 130 9022.
ioannis.verdelis@
bestinternational.co.uk
can be sold to the general public, but they won’t support certain types of product. The product, its business plan, and its sales strategy, have all got to be developed before you draft the legals to match. And for a straightforward product, with the right partners on board, being in the market can be a matter of weeks, not months. What markets are selling well in the fractional space? For lifestyle products, it will be markets with an established or growing tourism base. Those markets with a real demand for accommodation, good seasonality, and the tendency of visitors to make repeat visits. For investment products, it needs to be a market which is considered secure, with good yield potential. If your product demonstrates any of these attributes, then it’s worth considering fractions as a different way of selling. And fi rms are being successful in this space. In fact, most fractional developments currently in the market were never designed to be sold as fractionals. If you want to make a start, I would suggest approaching marketing companies to see if your product is a desirable one in the fractional arena and then designing a full business plan. What is being sold? Who is the target audience? What is the distribution strategy? What are the marketing and sales costs likely to be?
These are all questions that will dictate how to approach the legal and technical teams to be sure what you are trying to do is feasible.
BUSINESS
SALES SRATEGIES | 31
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