Luxury Fractional Real estate
Further, this level of growth may only
be the tip of the iceberg.
“There are currently 50,000 house-
holds in the United States that own
a fractional property,” says Rist, citing
statistics from the recent Ragatz report.
“And given the income threshold of
most buyers is around $200,000, the
market size is over 5 million households
nationally. We’ve only tapped 1 percent
Developing a Single-home Fractional
of the market.”
Penetration levels are expected to reach
develoPer: La Sarenne Luxury Properties 5 percent in five years and 10 percent
loCAtion: Lake Tahoe, Calif.
within a decade, growing from 50,000
owners currently to more than 500,000
ProjeCt sPeCs: Single-family, luxury vacation
fractional owners nationwide in 10 years,
home conversion to fractional property
according to Ragatz Associates. And baby
PurChAse PriCe: $990,000
boomers will form a large segment of this
growth as they reach retirement age and
minutes to Closest ski AreA: 5
want a second home within their means.
minutes to golf, Clubhouse, tennis, sWimming: 3
If these numbers prove accurate, this is
an early stage, rapid-growth industry
uPgrAdes to struCture And furnishings: $200,000
with tremendous profit potential for
mArketing Costs: $60,000 early movers.
Cost of sAles: 9 percent REALTOR® commission and closing costs; $164,700
The rest of the story
number of shAres: 6 Such a bullish outlook begs several
sAles PriCe (Avg.): $305,000
questions: How does one get into this
industry as an investor or developer?
gross revenue: $1.83 million
What kind of return on investment can
est. net revenue (before Cost of CAPitAl): $415,300
be anticipated, and what are the risks?
Like any emerging industry, the biggest
ProjeCt term: 2 years
barrier to entry is finding information,
biggest stroke of luCk: “Finding the right local person to handle my and as little as four years ago, there was
concierge services. Sometimes you just get lucky,” says Bruce Cuthbertson, very little available in terms of research
president of La Sarenne Luxury Properties. or successful case studies. Today, you can
mistAkes: “I made the mistake of undertaking a room addition, which cost
turn to research reports and online sites
more than budgeted. But worse, it kept me off the market for far too long,”
such as LuxuryFractionalGuide.com
Cuthbertson says. “My advice: Stick to your core competency. If you’re doing
and HalogenGuides.com, talk to other
ground-up development to fractionalize, then it’s going to act more like a
developers, attend conferences, and
traditional development project. But don’t get caught taking on a project
network with consultants who specialize
in developing fractional projects.
component that is outside your area of expertise.”
The return on investment depends
largely on three factors: location, the
amenity package, and local market
while luxury fractional homes are an Outrageous potential conditions. “We want to see a product
appreciable exclusive asset,” says Hart This luxury fractional niche has that is in the right location and meets
Rist, sales manager at The Hammocks, demonstrated remarkable resilience the criteria for a high-end property,”
a North Carolina fractional develop- in today’s real estate market, showing says Tom Ward, principal with Ward
ment. Nonetheless, being associated consistent sales growth in each of the Financial Co., which provides developer
with timeshares isn’t necessarily bad, past three years. Ragatz Associates, a and fractional buyer financing.
he says. People familiar with the research and consulting firm specializing Sherman Potvin, fractional consultant
timeshare model are quick to under- in resort market tracking for more than and author of Fractionalize to Maximize,
stand the benefits of fractional 30 years, recently began tracking sales uses the following formula to calculate
ownership. “The best prospects in the fractional ownership market. the total price for a fractional home: in
we get are those who have owned According to the company’s latest annual a cool market, the sales multiplier for a
a high-end timeshare, perhaps at report, fractional sales dollars grew 7.8 fractional in a great location and with
a Marriott or Hyatt.” percent in 2006 and 8.3 percent in ’07. five-star amenities, such as a pool, golf,
20 I July 08 I Growing Wealth I growingwealthmag.com
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