Fractional Real Estate - And 'Here to Stay

The evolution of Fractional Real Estate

My family has always a thrill to watch the Olympics. This year was more special than the others since many of the Winter Olympic athletes were from our hometown of Canmore, Alberta. In fact, one of our baby sitter was able to claim a gold medal. I like the fighting spirit shown by these athletes race who only know one thing ... have come to bringing home the gold medal. I love the talk of victory, the young adults who pay homage to the unconditional support of their families and communities. The values ​​that these young athletes are indicative of a transition in our society on fundamental values ​​of family, and with that, an evolution of the types of products we see real estate developments in our resort areas. This place was 911, the socio-economic values ​​continue to go to a more deep-rooted family values. As I wrote earlier, travel experts have documented the need for an accommodation type suites and units with "lock-off" capability. The new generation of travelers simply do not bring children with them, but often have extended family and a nanny. The desire to seek safe places that allow the family to develop closer relations feeds much of the demand for tourism and real estate we see at the moment.

Several years ago, I had the opportunity to work with the parents of Jennifer Hiel, our athlete's Olympic freestyle gold medal. Randall, the father wanted to put together a fractional real estate project in Canmore who was then a very new product in Canada. The relationship was born from my experience in this area since mid-1990. At that time only three or four fractional programs had run their course, and Montabello Horstman House in Whistler, and Kelowna in the Borgata Lodge Lizard Creek Lodge in Fernie.

Fractional real estate has evolved since 1970, when a fraction of the first projects has been marketed in the United States. Since then the fractional concept has rapidly gained market share in many luxury goods and real estate markets. I remember writing an article in 1999, the developers recommend to look at this product as part of their mix. At that time, very few took me seriously, the most neglected research and simply watch as others diversified their product lines and has successfully created a more balanced marketing mix. Yet, I must say that there are three types of people in the world, those who make things happen, those who watch things happen and those who say what happened?

Many people associate with fractional timeshare, partially correct. In fact timeshare is a form of fractional real estate, fractional real estate is not timeshare. Timeshare is a wonderful product, demonstrates its continued success around the world and many buyers who have several weeks and continue to add to their personal inventory. It is not, and never will be an investment. The complexity of a division title 52 ways simply impossible to be regarded as a true real estate. The person who buys probably predictable travel patterns and travel times, like a little luxury 'more than normal, is not interested in an investment, but can see that with a little' planning can save money on future holidays.

Fractional However, the evolution of a concept is very natural - friends and relatives gather to share the cost and the property in the course of an activity that they know not to use all the time. For example, as the market accelerated in Canmore and prices has become difficult for the average buyer to afford, we noticed that they purchased in groups. For example, think of four golf buddies get together and buy a duplex, however, three years after they were often not friends. Perhaps one has had problems with a company and could not afford to pay its share of taxes for a few months. Another wanted out, but the other three could not agree to sell at the same time, and perhaps another broke the TV and put a cigarette burn on the couch, without admitting to leaving the cost to others, deemed unnecessary. All these circumstances led to the evolution of formalized programs, fractional ownership and management structures, which alleviated the challenges with relationships informalised. We see that the consumer has created the concept, and then, consumers are turning to us, (realtors, or developers) and say you can not understand it. Give some 'developers credit for a change, but listened.

The industry is not new, is not at all. Nor is small. Take for example the fractional jet industry executive. Operations like FlexJet and NetJet are enormous. In fact they are the fastest growing segment of commercial aviation market. So successful they are, that Warren Buffet bought one of the leading market, Net Jet, because he believed so much in the business plan (after being a client for several years). On the west coast, one of my companies joined a few colleagues to start a joint-like with high-end luxury yachts (both power and sail) and is now flourishing. The sailors who realize they can not rationalize the purchase of any boat for themselves when to use it only 2 weeks of the year is gaining One4 Yacht Fractions.

So here's the clincher ... usage statistics are no different for a second home. The average home owner gets 2 of about 2 or 3 weeks of using their vacation property still pays for operating costs throughout the year. One option is to purchase a condominium unit with a rental management program, but as we wrote last month, we may be subject to negative market forces of supply and demand, as an excess of units and programs are developed Rental management take a few years to mature. The other option is to reduce the need to apply for rental income alone the purchase of the property. Typical fractional buyers purchase their properties for several reasons, including:

1. More luxury available to what he could afford a set unit.2. First class service that makes life easier and helps them feel like they really possess the full unit.3. High class exchange program that provides beautiful properties around the world such a caliber.4. The ability to benefit from the market appreciation5. Reduce costs ownership6. Programs use flexible with last minute discounts added on inventory7 available. Management program for rental properties weeks.8 unused. Frills, lots of them!

In Canada, many mistakes were made with programs based on the fractional inexperienced developers. For many, it is used simply as a method to reduce the cost of entry to property ownership, without taking into account the fact that marketing costs are generally higher and as you can see from the above, the buyer motivations do not necessarily In line with this philosophy. However, as the market evolves, expect to see more sophisticated fractional programs that truly meet evolving customer needs.

Fractional usually occurs in places where market entry barriers are created by rising house prices. It is a natural product considered in these types of environments. The spin-off, however, is that often buoys the rest of the market values. One place where this happened back in 1990 was Crest Deer Valley in Utah near Park City. As property prices rose higher and higher, people had doubts that the values ​​per square meter could be argued, however, fractional programs supported markets desire to continue to purchase in this beautiful area and the added values ​​of fractional ownership real supported the values, as we know, a rising tide floats all ships.

I believe the same will happen in the Okanagan, as offerings become more sophisticated. The developers I talk to every day are aware that the market has warmed up and spend a lot 'of their time looking in a sustainable way the market is and how to plan future developments carefully. The true extent of the labor shortage was not heard in our market yet, but undoubtedly have an effect on property prices over the next 12-24 months. Coupled with higher interest rates and growing demand, we're sure to see these diverse product lines and customers whose core motivation is increasingly oriented to personal use and not just investments.

We speak of values ​​in this market and product evolution fractional real estate. I remember when I studied this in 1995 before the launch of one of the first real estate developments fractional Canada, I was surprised by all the values ​​on the market. At that time, the hot zone was Telluride, Colorado, a small mining town, fast becoming the next Aspen.

One of the first products was the Franz Klammer Lodge, a beautiful property, catering to a wealthy clientele. I remember U.S. $ 160,000 was the cost of the property, which I thought was pretty good value until I realized it was for 1/10th of a hotel suite. Now it was a beautiful hotel suite, not very big, but beautiful. It was then that I realized that I had to find the product even more.

The challenge, as these product lines evolve, the real estate community is that it often lags behind the professional knowledge of the product. In order for appreciation natural market to occur, it is necessary a speed of outlets that are necessary to illustrate the values ​​of real market to consumers. In Telluride, Colorado, for example, several years after fractionals were introduced, real estate agents were still reluctant to list the product and, therefore, the values ​​of the market struggled to be supported on the market. Not because the buyers did not want the product, but was nervous because the real estate sector to promote the product because of their lack of education and product knowledge. The same cycle occurs in the Okanagan as a few brave souls venture into the world of complicated prospectus filings, agreements, rental management, leasing and sub head leases and hours of use (no two of which are ever the same!). However, as reported last week in Vancouver, in a mature market where real estate sales profession is accustomed to the product, the appreciation of fractionals is online and can sometimes exceed the rest of the market because of the desirability of product.

As our demand for increases in pensions and luxury life we ​​believe we have earned our crust, so to speak, the developers feel the pressure to reorganize the product line a bit 'and offer a new level of fractional real estate. So we're seeing the evolution of "Private Residence Club" in North America. In markets where the bragging rights of the rich used to be "if he owned a second home" have been replaced by "how many second homes owned by them", we see rapid evolution of a concept called "Private Residence Club" or, in some cases "Local private equity."

In some of the most fascinating parts of the world, Puerto Vallarta, Whistler, Bahamas, Cayman Islands, Baja Peninsula, and yes Whistler, Kelowna, this concept is evolving and demonstrating once again, if we design the right product, the audience appreciated value. The value is however significantly different to the traditional real estate.

In studies of fractional eminent experts around the world, people like Dick Ragatz http://www.ragatzassociates.com which annually produces a timeshare / resort property study for RCI, the largest timeshare exchange company in the world, notes that typical fractional real estate program are selling for an average of $ 500us per square foot. Shock to many, perhaps, however, a condo at Silver Star Ski Hill just sold for $ 650 per square foot just this week and the owners have found in their purchase value. Private Residence Club are selling on average around the world for about $ 800 per square foot. The challenge that we as realtors / experts and consumers is that our company is often comparable real locally and yet, as directed by the purchase of the Silver Star, our customers are global. They look to Cabo San Lucas, Whistler and Okanagan, Okanagan and decide that they offer the best value.

The reason why private residence clubs operate this type of value is that they offer quality, luxury and service at a 5 star level. Consumers are increasingly buying this product because of their desire to have their turn hard work into quality relaxation and fun. In some cases, the Private Equity Club are structured much like a golf club. Perhaps an entry fee $ 250 000, with perhaps $ 20,000 to $ 50,000 a share annually to allow access for several weeks luxury units in different parts of the globe and beautiful. For the right person, this is a great product, no ownership of real estate is sometimes a simplicity that rich people really appreciate.

In private residence clubs, structures similar to the Royal Residence Private Club which was recently sold in the Okanagan, are very similar, in fact identical to a typical structure of fractional ownership. However, the similarity ends there, often by the added benefits and quality of interior finishes and furnishings are unparalleled.

The Private Residence Club has offered its local units selling for up to $ 1,000 per square meter and the units have sold. So, how can we have homes near the Grand Hotel The sale for $ 200 per square meter and luxury with a lake view units selling for $ 1,000 per square foot? Read the above article again and make sure that as you compare values, you are trying to market itself. When I checked the latest Kia car and a BMW car, both of which can be purchased in Kelowna and they both get you from A to B, are very similar, but the command a price much different, comparing apples to oranges example, many shows an ignorance which can be fixed with the search ....