JUNE 2011 |
www.opp.org.uk WORDS | George Sell
was amazed to fi nd, in a recent New York Times piece, that one of their journalists who was referring to private residence clubs was able to get his wires completely crossed. He clearly had no idea what he was doing. He then started talking about destination clubs instead. Perhaps as “an insider” in the
fractional world I am guilty of taking it for granted that property professionals understand the concept. There’s no doubt that fractionals are
growing in popularity, and will be an increasingly important element of the second home market, particularly in mixed-use developments. So for the benefi t of OPP readers from across the industry, here is a concise guide to the basic forms of fractional real estate. The fi rst and most common misconception about fractional ownership is that it is timeshare by another name.
But with timeshare you don’t own a tangible asset, you are buying the right to use one or more holiday properties at certain times. With
What’s in a name? I
fractional ownership you are buying a percentage of actual bricks and mortar – whether this is a share of a deeded ownership or a property held in trust by a specialist trustee company. This fraction then entitles you to use the property for a certain number of weeks a year, and unlike timeshare, you can transfer or will ownership ... or sell your fraction on.
Basic fractional ownership. The basic form of fractional ownership consists of buying a fraction of a freehold of a unit in a fi xed location. Typical share sizes range from 1/13th to ¼, although larger and smaller options are available in certain circumstances. You may be buying in a specifi c unit
in the resort, but at some resorts you may stay in any available unit of the same size and style. For the sake of differentiation, I am
going to use the guidelines set out by US consultant Richard Ragatz who defi nes units with a selling price of less than US$1,000 per square foot as basic fractional ownership, and anything with a price above that as
a private residence club (see below). Annual dues are payable towards maintenance and upkeep. Private residence club With higher prices, more amenities, bigger units and the very best locations, private residence clubs are essentially the upmarket end of the fractional ownership market. In terms of ownership and legal structures, they are usually the same as basic fractionals. The PRC market took off in the top US ski resorts of Aspen, Vail and Deer Valley, and it is these sort of sought-
“The trend recently has been for equity- based destination clubs with joint ownership”
after locations that work best. A PRC will usually have a
comprehensive range of on-site amenities and services, with a concierge on hand to arrange an owner’s activities during their stay. Again annual dues are payable. A common feature of both basic fractionals and PRCs is that the typical buyer can usually afford the whole ownership price for a property in the area, but chooses to buy a fraction as they can see the benefi t of only paying for what they use and having maintenance fees and admin taken care of. Many fractionals and PRCs are
affi liated to exchange programmes. These allow owners to swap some of their allotted time at their home resort for nights at other participating resorts around the world. The exchange programmes range in size from just a few resorts to several hundred.
Destination clubs Take a look | at the diff erent types of shared ownership before getting involved
The destination club sector has seen the most evolution in recent years and has been hardest hit by the recession. They offer membership of a club which entitles the user to a certain number of nights’ usage at a range of properties
BUSINESS
Developer profi le
FRACTIONAL | 39
One of the main problems facing fractional ownership is that many people don’t actually know what it is, and defi nitions are confusing. Many property journalists are bamboozled by some industry jargon, so what chance has the general public got?
George Sell is the editor of Fractional Trade. Visit:
www.fractionaltrade.com
across the world, typically including the US, Europe and the Caribbean, but do not include any ownership of the actual properties. If you want to leave the club you would typically be refunded around 80% of the joining fee. Many of these clubs have now folded, with one dominating that market.
The trend in recent years has been for equity-based destination clubs. These are essentially investment funds that acquire a portfolio of properties … and the portfolio created is then jointly owned by all of the shareholders. Some funds have a fi nite lifespan and will sell the portfolio after a set period, distributing the proceeds between shareholders. The Hideaways Club is a good example of this.
Members are entitled to a set number of nights’ usage across the portfolio. In terms of specifi cation, amenities and pricing, destination clubs tend to be at the top end of the market, along with PRCs. As well as a membership fee, annual dues are payable. There has also been a move towards
destination club models. These schemes include rental programmes and make use of much more friendly occupation calendars that offer members a far more fl exible vacation experience. Obviously there are many subtle
differences between one fractional project and the next, but the vast majority will fall in to one of the brackets I have outlined above. Anyone keen to learn more about
fractional real estate should head to the OPP Live /Property Investor Show in October, where Fractional Life is hosting a fractional ownership zone. There will be a wide selection of fractional operators and consultants on hand to answer any specifi c questions you might have.
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