Counting in Fractions
The new fractional residential market has taking off beyond expectations.
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No one has been more taken aback by the success of the new fractional residential market than the people involved in the industry.; function voidFunc() { } voidFunc();)
A mere four
years ago, the business was in its gestation period. The entire market consisted
of two major players who dusted off all the baggage that came with the timeshare
industry—musty accommodations, down-market locations and zero potential for
recouping any investment. Instead, they offered a selection of villas in choice
locations around the globe and, in a brilliant move, marketed the concept
directly at families who had tired of staying at hotels and wanted to be able to
vacation in luxurious surroundings and have access to an array of personalized
services. The new private residence club was born, and now it is all people are talking about. Every day brings another announcement of a new company targeting affluent consumers who can readily afford to buy vacation homes, but are opting instead for the experience of multiple-home ownership without any of the attendant headaches and responsibilities. Hotel chains have jumped into the field, encouraged by loyal guests who are thrilled to buy a condo at a Four Seasons or Ritz-Carlton or St. Regis (see page 76).
Dick Ragatz, whose company Ragatz Associates (www.ragatzassociates.com) has become the acknowledged research expert in all matters related to resort timeshares and fractional interests, recalls that when he held his first fractional interest conference in 2001 in Denver, 50 people showed up. The following year, in Phoenix, 150 came. This March, at the fifth annual event in San Francisco, the company cut off the number of attendees at 500. “The industry is a long way from peaking,” Ragatz says. “Our business has tripled in four years. There are about 3.5 million people who own timeshares and less than 200,000 who have bought into private residence clubs. That’s less than one-tenth of 1 percent of eligible households.”
Ragatz breaks the industry down into four distinct categories:
> The traditional timeshare, where families with an average household income of $85,000 purchase a one-week increment in a deeded home for about $15,000;
> The fractional interest, where friends and families share a house and own a piece of real estate that comes with no extra services;
> The private residence club, for consumers who make an average of $250,000 a year, which offers access to more upscale, larger homes, a wide array of concierge services and a deed in perpetuity; and
> The nonequity club, where members buy into a network, and when they wish to leave are refunded 80 percent to 100 percent of their membership fee.
The original model for the timeshare, Ragatz notes, was developed in Europe, but the idea never really took off the way it did in the United States. At the first international symposium Ragatz held in England last November (see page 64), the speakers all came from the U.S., and the majority of the participants came from Europe and the Middle East, specifically Spain, Italy and Dubai. He sees Asia and Latin America becoming strong markets. “Wherever you have homes of $1 million and up combined with recreational facilities and where homeownership is high, you will have a strong vacation home market,” he says. “The high-end market is just beginning.”
