The Evolution of Fractional Vacation Ownership

by Sherman Potvin

 

Fractional real estate is one of the fastest-growing segments of the real estate industry. In fact, fractional sales topped $500 million in 2003 alone. The sales are fueled by the rapid increase in the number of luxury fractional properties being built. There are over 150 properties in existence now, most of them built after 1999.

 

Why are so many buying fractionals? Mainly because the fractional concept is finally reaching its full potential. The way fractional real estate has been built, marketed and sold has been fine-tuned over the last 30 years. The current model of fractional ownership has improved upon the best ideas of its timeshare beginnings, and solved the problems that hindered the industry in its early days.

 

Where It All Started

Perhaps the earliest type of fractional ownership was a group of relatives or friends simply sharing the cost and use of a vacation home. This was all well and good until someone needed to sell or died. The two happiest times in this type of deal are when you purchase and when you sell!

 

As the timeshare industry emerged in the late 1960s, the very idea that you could actually purchase a week at your favorite resort, owning the rights to it for many years and having the option to trade it to visit other resorts, was truly welcomed by the American public. It was affordable and the concept was that you could pre-pay your vacations at today’s pricing.

 

During the 1970s several disreputable developers got involved in the timeshare business and as horror stories of folks being swindled in one way or another spread, the word “timeshare” soon became an unmentionable one. In the 1980s some of the better know “brand hotels” decided to bring back some of the trust that the industry once had. Led by Marriott Hotels, the timeshare image and success blossomed, it seemed, overnight. The worldwide timeshare industry took off and continues to prosper to this very day and into the foreseeable future.

 

The Demand for More Weeks

As consumers began to purchase multiple timeshare weeks because they were enjoying more vacation time, it would be only a matter of time before some enterprising developer found another way to sell “larger pieces” of a condominium or home to meet that demand.

 

While there is considerable disagreement in the industry as to who “really” structured the first true fraction, many credit a developer named Emil Hanslin with establishing the industry’s first multi-week sales program. In 1971 Hanslin split his New Seabury, Mass., condominiums into “quarter shares”. Soon “quarters” were the rage up and down the east coast, especially in the Hilton Head Island area of South Carolina. This type ownership was however, short-lived. In order to sell quarter ownerships, the price per quarter was more than the market could bear. Second home prices (and property taxes) were so reasonable in the 1970s that folks simply purchased the entire home!

 

Meanwhile in 1972, a gentleman by the name of Carl Berry, currently CEO of The Worlds Finest Resorts (www.twfr.com) and one of the very first developers to build and market timeshare properties, designed what is generally considered to be the first “true fraction” simply because it was more than a week but less than a quarter, it was a 1/5 offering at a resort called Brockway Springs in King City, Nevada. While his project was very successful, the fractional timing still wasn’t quite right in America and interest dried up. The fractional market was left to timeshares for the next 20 years.

 

The PRC Revolution

It wasn’t until 1992 that the luxury fractional property was truly born. That was when three businessmen, David Hanna, Steve Derring and Jim Whitteron, launched the Deer Valley Club in Park City, Utah, a 1/10 offering of luxury quality and price. To add a touch of class to the project they coined the phrase “Private Residence Club” (or “PRC” for short) which has become the generic term for the crème de la crème of fractional resorts. The success of Deer Valley launched a “fractional gold rush” in the state of Colorado, and within seven years there were more than 24 fractional PRCs in one stage of development or another.

 

Over the past five years nearly every brand name in the hotel industry has rushed to get in, from Ritz Carlton to The Four Seasons. They have built fractional properties across North America. These branded properties have managed to secure the very best locations and are offering every type of fraction imaginable, from 1/5 to 1/13, with pricing for everyone’s pocketbook. According to Dick Ragatz of Ragatz Associates — the leading researcher in the resort industry — the fractional industry is growing at a pace unparalleled since the hotel boom of the 1960s. They reported 151 fractional resorts at the close of 2003 and predict another 20+ starts in 2004.

 

More Choice To Come

Though high-end skiers were the initial focus, the industry is well on its way to servicing many other interests. There are now fractional golf resorts and beach resorts, and fractionals are even being offered in large cities such as New York and London.

 

All of this development can only benefit the consumer. The more the developers build, the more reasonable prices will become, and the more choices there will be. More locations will mean a better chance of finding a fractional resort within a reasonable driving distance — meaning more time spent where you have invested your money. With practically all fractional properties now having an exchange program, one can consider trading a week to travel to a dream destination. And as with all deeded property, fractional owners have the right to rent, sell or bequeath their property. In other words... to have their cake and eat it too.

 

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