The Hotel Times - March 2008 - (Page 20)

FRACTIONAL OUTLOOK » BY RICHARD RAGATZ Residence clubs gaining popularity Active projects expected to grow 50 percent in 2008 A Richard Ragatz is president of Ragatz Associates, a consulting ﬁrm serving the resort industry. Since being formed in 1974, the ﬁrm has conducted more than 2,000 studies in 46 states and 70 countries. The ﬁrm specializes in the fractional interest/private residence club industry. new product has been introduced to the resort realestate industry. Fractional ownership, sometimes known as a private residence club, involves selling shared-ownership in upscale resort homes. Fractional interests differ from resort timeshare because of a greater degree of ownership, more usage, high quality and larger resort homes, more services and amenities, higher prices, and correspondingly, higher income consumers. The fractional interest concept is characterized by value and rationality. Advantages for consumers over whole ownership include being able to purchase the amount of time and resort realestate that matches their vacationing and discretionary expenditure patterns; being able to purchase a higher quality resort home for less money; more personal services; and hassle-free maintenance. Advantages for the developer are having a broader market; generating a higher proﬁt margin; and offering a product that is at the cutting edge of the resort real-estate industry. A recent survey by Ragatz Associates identiﬁed 254 fractional interest projects in North America, including 135 in active marketing and sales in 2006. That number increased by 20 percent in 2007 and is expected to grow another 50 percent by the end of 2008. Of the 254 developments, 75 percent are in the United States, 15 percent are in Canada, 6 percent are in the Caribbean and 4 percent are in Mexico. Colorado, California and Florida contain 27 percent of all developments. It is estimated that total sales volume in the industry in 2006 was $2.1 billion. This rapid growth is demonstrated by the fact that two years earlier, total sales volume was a little over $500 million. Most signiﬁcant growth in 2006 was in private residence clubs at 92 percent. Private residence clubs are at the upper end of the fractional interest market, typically with prices over $1,000 per square foot. The average fractional interest project will contain 40 units, with the average size being 1,710 square feet. We also are ﬁnding trends for oneoff single-family vacation homes; urban locations; projects geared toward speciﬁc recreational activities; and a broadening of the market in regard to prices and locations. Prices range widely. For nonprivate residence clubs, selected average prices are $163,775 per share, $24,730 per week (when disaggregating shares to an individual weekly basis), and $631 per square foot. Among the higher-end private residence clubs, these averages are $347,850 per share, $70,435 per week, and $1,803 per square foot. Per-square-foot prices also vary signiﬁcantly by country, from $654 in Canada to $1,047 in Mexico, $1,444 in the U.S. to $1,457 in the Caribbean. They also are higher in ski communities and at branded developments. Annual maintenance fees average $6,910 per share. It is estimated that 40,000 households have purchased fractional interests, which represents about 1 percent of all households in the U.S. with incomes over $200,000 (the assumed income eligibility at this time). If the penetration rate reaches 10 percent, about 90 percent of the market at this level remains untapped. hmm@questex.com 20 The Hotel Times March 2008 www.TheHotelTimes.com http://www.TheHotelTimes.com

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The Hotel Times - March 2008 Business Outlook Editorial Outlook Contents Conference Preview Capital Outlook What's Driving Growth? European Outlook Development Outlook Fractional Outlook Branding Source List Insurance Outlook Brokers Update Brokerage Outlook Lodging's Balancing Act Transactional Facts Lending Outlook Lenders Source List In Closing

The Hotel Times - March 2008

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