Wade Shealy, founder and creator of 3rdhome.com and one of the most knowledgeable people I’ve met on the second home market, tells me fractionals are going to come back strong. Fractional vacation home ownership makes sense; you own a deeded right to your property for a “fraction” of a year, which is why most people like this kind of vacation home ownership — who has more than 2 to 4 weeks of vacation time a year, anyhow?
Add in high maintenance costs and the desire to try out different destinations each year, you can see why fractional ownership is becoming increasingly popular, especially overseas.
But is fractional ownership just a more luxurious and upmarket version of timeshare, as the Wall Street Journal recently posed? No. Fractional ownership means you actually own the bricks and mortar, or buy a share of a single property or, in some cases, a whole portfolio of properties, which you are then entitled to enjoy. When you buy a condominium, for example, who don’t buy a whole building but the right to use common areas and the specific square footage you have purchased. That’s the way fractional vacation home ownership works.
With ten million vacation home owners in the USA, 50 million across the world, get ready to hear more about fractionals, here and abroad. There’s simply too much inventory in the second home marketplace to sell all as individual units in a locked-up mortgage world. At the upper end of the market, you can buy into quite simply yhe world’s best properties — The Timbers, one of my favorites; Calistoga Ranch in Napa Valley, 5 star plus service cottages on a northern California wine country creek… for $475,000. Or look at The Palms in Costa Rica — ocean front villas on the beach with amentities that will make your head spin for a fraction of what you’d have to pay for a full home that will have to be maintained when you are not there. Here’s a list of the ten best places for shared home ownership.
That’s why I asked Elaine Joli, author of “Vacation Nation: The Complete Guide to Timeshare, Private Residence Clubs, Fractionals and Destination Clubs” to tell us more about the rise in fractional home ownership:
It is mid January and Joe and Karen Tutrone take their final ski run of the day. They race each other down Doc’s Run to the base of the Canyons Ski Resort in Park City, Utah. Their cheeks are flushed a bright rosy red, and their smiles are as wide as the vistas they viewed at 9,000 feet. Joe stomps the powder snow off his boots, and walks with Karen through the comfortable but elegant lobby in the Grand Summit Resort Hotel. They take the elevator up to their million-dollar one bedroom luxury residence, laughing about the spectacular day they had on the slopes wondering if they have time for a massage before meeting their friends for dinner in Park City.
The same week, Jeff Silberman and his wife Karen breathe in the fragrant Pacific air, and take in the spectacular view of Kapalua Bay from their multi-million dollar two bedroom, three bath, top floor residence in the Ritz-Carlton Kapalua in Maui. Their two teenaged daughters are splashing in the 8,500 square foot lagoon below, with plans for an afternoon zip line adventure.
“I feel very fortunate to have this place as a second home,” says Jeff.
Fortunate indeed. But more and more Americans are finding ways to enjoy a million dollar lifestyle for a fraction of the cost. Jeff and his wife are deeded owners in the Ritz-Carlton Destination Club; a concept that offers Jeff and his family, use rights for 21 days a year in this luxury residence and hotel complex. Joe and Karen are deeded owners of a quarter share, one bedroom luxury residence in the Grand Summit Resort Hotel, in The Canyons Resort, which allows them 12 fixed weeks of use every year. They use their residence two to three times every winter to enjoy the spectacular skiing in Utah, but since they don’t use their residence in the summer and fall, they place their additional weeks in the Grand Summit rental program.
In almost every high-end resort in the United States and abroad, the possibility of owning a deeded interest in a luxury residence is still within the means of many Americans, even in this economy.
Traditionally, owning a luxury vacation home meant a very large capital investment, plus the annual costs associated with the maintenance and upkeep of the home, even though most families only vacationed there only a few times a year. In an article in The New York Times, Paul Sullivan quotes Milton F. Pedraza, chief executive of the Luxury Institute, “People become slaves to their homes. They buy into the headlines and that makes them pretty miserable with their vacation homes. Mr Pedraza said one common cause of second-home misery was that owners failed to factor in how much time and money were needed to maintain a place hundreds, if not thousands of miles away.”
Today, ownership options have expanded to include private residence clubs and fractionals, offering deeded ownership with a use right that fits with the busy family, without the hassel of upkeep and maintenance. The residences are often found in “rare air” resort locations taking advantage of a fabulous ski hill, an award winning golf course or white sand beaches, although there are many developments that offer the serenity of desert living or the rugged outdoor life in Montana and Colorado. Services typically offered owners include daily housekeeping, 24/7 concierge, pre-arrival preparation and stocking the kitchen with favorite wines and food, airport transportation, and valet services. Resort amenities typically include swimming pools, hot tubs, spa facilities, private owner lounges, restaurants and lounges. In addition, most fractional properties offer a rental program to owners, as well as an exchange affiliate membership, where owners can exchange their residence for another residence (of the same value) in thousands of locations across the globe. The exchange affiliation now offers its members experiential vacations (think safaris in Africa, a cruise around the Mediterranean, wine tasting in Napa).
Ragatz Associates, the leading analyst and market research firm in the resort real estate industry, released their annual shared ownership survey in March 2010, where some 322 projects in the U.S, Canada, Mexico and the Caribbean have been identified, with 125 in active sales. Just as with many other goods and services in the United States, sales volume in the industry was down 44% in 2009, from a high of $1.525 billion in 2008. Whole ownership vacation homes were down by an estimated 60%. Remarking on future trends, Ragatz states, “It is widely felt in the resort real estate industry that shared ownership resort real estate will rebound more rapidly and more strongly than whole ownership resort real estate as the country’s economy recovers.”
This optimism may be well justified, as the model for fractional real estate is based on personal use rather than speculation, the exchange opportunities, flexibility of use, the hassel-free form of deeded ownership, as well as the economic logic to owning only what you use.
Jeff Silberman’s family and Joe Tutrone’s family certainly have different ideas on the perfect place to get away in the winter months. But both families have invested in what may be more important that owning simple real estate – spending time with loved ones, building memories and knowing they are getting away several times a year to a place they love. And in this economic climate, perhaps fractional ownership presents a new affordable opportunity to do just that.