JULY & AUGUST 2012 |
www.opp.org.uk David Disick
David Disick is president of the Fractional Consultancy, based in Florida, and long time OPP correspondent about all matters fractional. David has been on vacation, so this response has been written using his words but with the help of his staff. He can be contacted at
David.Disick@TheFractionalConsultant.com
1. What buyers really want to buy is hope. For example, hope that then can enjoy a better, happier, more healthful and fulfi lling life.
Fractional buyers like the security of a real estate deed to their property. Real estate is something tangible and familiar that they like and understand. It can help diversify an investment portfolio and can serve as a hedge against infl ation. Fractional owners are willing to take responsibility for deciding how to manage the eventual sale of their property
It is axiomatic in sales that people buy for emotional reasons, then use logic to justify the decision that their heart has already made. 2. Yes, if the numbers work. Investment fund offer to qualifi ed investors an ownership interest in a portfolio of luxury resort and/or city properties in a variety of locations. That is a fractional by another name. 3. Prior to the current economic climate, general industry experience was that a whole ownership property sold fractionally could generate signifi cantly greater revenues than a whole ownership sale – as much as 1.5 to 2 times whole ownership revenues. This ratio is the “Fractional Multiplier”. There are three schools of thought on the validity of the multiplier in the current market climate. One school holds that the multiplier hasn’t changed much because it expresses a ratio—if whole ownership prices go down, so will fractional prices, but the ratio will stay the same. This is “logically” sound but I would respectfully submit it ignores buyer “psychology” in the current economy. A second school holds that the multiplier is substantially diminished, if not
largely eliminated. Here, I also (and respectfully) differ. This school ignores the fundamental logic of the multiplier. A third school has been expressed by Andy Sirkin as follows: “What we’ve seen in the last three years is that the Europeans have been way out ahead of the Americans in terms of perceiving that the old pricing model for fractional interests, where you had a very large pricing multiplier, was not going to work well under the current fi nancial conditions. The Europeans correctly perceived that in this market, fractionals should really be viewed as another way to sell products, rather than as a way to sell products for more.” I am inclined to agree with Andy’s approach – with an important addition. If you have a suffi ciently strong fractional project, with a pro-active marketing and sales team utilising the most current marketing and sales techniques, you can achieve a “signifi cant” multiplier. The word “signifi cant” refl ects a real world operational evaluation for your particular situation,as distinct from the automatic application of a ratio. 4. They should be 100% transparent. 5. Fractional ownership properties cater to a far more affl uent clientele
than does timeshare. Fractional properties offer a signifi cantly more luxurious vacation experience and attract buyers who are more qualifi ed and more credit-worthy. 6. No matter what the economy, the very affl uent always have discretionary income to spend on vacation home property—if they choose to. The highest ends of the market are—and always have been—the safest market niche to occupy. 7. What buyers really want to buy is Hope. For example, hope that then can enjoy a better, happier, more healthful and fulfi lling life.
It is axiomatic in sales that people buy for emotional reasons, then use logic to justify the decision that their heart has already made. 8. No. 9. It would be immodest to say! 10. People who like the security of a real estate deed to their property. Real estate is something tangible and familiar that they like and understand and People who are willing to take responsibility for deciding how to manage the eventual sale of their property. 11. Studies show that most whole owners occupy their vacation home for only three or four weeks a year. So, it’s plain common sense, for people who use their vacation home for just a few weeks a year, to ‘co-own’ it and pay only a fraction of its price and upkeep. This idea of paying a ‘fraction’ of the whole price of a vacation home used only part of the time is irresistible to many buyers. 12. Have confi dence in your product but don’t be greedy.
FEATURES Roy Brazier
Roy Brazier is a partner in the Palace des Vosges in Paris. He is not an ‘expert’ in the same way as most of our 3WM contributors but he has been through the process of developing and selling a beautiful project in Paris and has some interesting thoughts. Roy can be contacted at
palacedesvosges@gmail.com
1. Buyers get high-end properties at a low price point, while getting rid of the need to rent their property when they are not using it. Developers get access to far more potential buyers and, maybe, make a little more money. 2. Probably, but this is not the main focus. 3. Very little. We wanted to sell our project and thought fractional was the best
way. It was a way of fi nding buyers, not a way of making huge profi ts. Our type of buyer is fi nancially savvy enough to realise when they are being ripped off by someone. If we had added a huge element of profi t, they simply would not have bought.
Our multiplier was about 1.3 – enough to cover our extra costs. 4. By the owners. The process must be completely open. 5. For us, mainly fairly wealthy Americans but we have seen interest from other nationalities including Russians, Australians and the British.
“What is your top tip for fractionals? Robert: Work with a reputable company that offers a strong training program. David: Play on the fact the buyer will only be paying a ‘fraction’ of the price, as they will only use it three or four weeks a year. Roy:Don’t start the day before the 2007 crash! Have a good sales model, don’t be greedy.”
6. We offer a truly luxury property in the very heart of Paris. The place des vosges is acknowledged to be the most prestigious address in the city. 7. They love Paris. They want to spend time there but they don’t want to pay a huge amount for their own apartment. 8. No. 9. Our fractional offers the very best in accommodation and service at a very reasonable price: €140,000. 10. For us, people who really want the product: to be able, themselves or via their children, to spend a month each year living in luxury in Paris. 11. Ensure that you work with a reputable company and a great, well
priced product 12. Don’t start the day before the 2007 crash!
Apart from that, have a clear sales model and get your costings right. Don’t be greedy. Think about how you make the last couple of sales and get out of the project and on to the next venture. We are still going through that process, looking to sell the last fractions. Anyone interested?
THREE WISE MEN | 15
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