Fractional Ownership News
Cautious optimism at the Ragatz Fractional Interest Conference
Last week Fractional Life attended the annual Ragatz Fractional Interest Conference in San Francisco which gathers all the movers and shakers in the fractional ownership, destination and private residence club property sectors.
Now in its eighth year and with approximately 750 attendees, the majority from the US and an increasing amount from around the world, the attendee list read like a global who's who of the fractional world. We heard how fractionals are relatively well positioned to weather the current real estate slowdown. Based solely on US data in 2003, Ragatz www.ragatzassociates.com reported an industry sales volume of $513 million. Last year fractional ownership projects, destination and PRC's achieved sales of $2.3 billion, up 8.3 percent from 2006. The numbers include new fractional sales, preconstruction sales and also resales.
However in these uncertain times with the credit crunch and finance availability remaining weak when you assess sales volumes and prices achieved by development, both "decreased slightly in 2007 relative to 2006" according to the report. The number of fractional and private residence clubs numbered 300 this year with growth achieved in the destination club marketplace and member numbers - there's now 21 companies, including 16 non-equity and five equity-based, with approximately 6,400 members. Destination clubs saw approximately $610 million in sales, an increase of about six percent and1400 members since last year.
US market penetration for fractionals within the real estate sector is amazingly low which bodes well for the future provided steady growth is maintained in these troublesome times, and particularly if market conditions encourage people to start assessing exactly what's important to them within their lifestyles and the smart alternatives to second home whole ownership. According to the Ragatz data, only 50,000 households have purchased a shared ownership residence (1.5 percent of a households with incomes of over $200,000) which means there's a huge upside should the fractional market spend wisely and target the "baby boomer" / fractional lifer" demographic.
Beach resorts with a reasonable amount of sun and hot weather are considered the most attractive location for potential purchases and the two major factors that resulted in a potential buyer hesitating about their purchase remain the ability to resell the unit and access to the property at peak holiday periods. However, when members join this should be fully explained and it was disappointing to note that all fractional purchase agreements are entitled as timeshares in US law. The panel agreed the industry still suffers from the stigma of the Tanner and Haley collapse in 2006 and any company that gets into difficulty now would certainly put the reputation of the whole fractional property industry at risk.
Developers were warned about entering the fractional ownership marketplace believing it's the answer to slow or simply non-existent current whole ownership sales without a solid but flexible business plan and total support mechanism. We were also clearly reminded of the uncertainty in the mortgage markets at present when First Fractional Funding, a US based mortgage company who were due to present at Ragatz about consumer loans for fractional properties, announced that its lending partner, the National Bank of Kansas City, had removed it's support for the fractional finance business a day or two before the conference. We hope this is a temporary setback and the other financial operators present were quick to wish the company a speedy recovery.
It was apparent there was a distinct lack of knowledge of what's happening over the fractional pond, particularly in the UK and Europe amongst the various industry panel experts and it took a plucky Fractional Life representative to encourage attendees to perhaps open their eyes to market their products in the US and to consumers perhaps further afield particularly with the US dollar currently so weak against many currencies around the world. The fact there's a dedicated fractional ownership consumer exhibition in London's financial district - www.fractionallifeexpo.com which attracts exhibitors and visitors from around the world, is proof if it was needed of fractional globalisation.
Greg Shove livened the Thursday sessions with another global phenomena, the Internet. He made an upbeat presentation on the benefits and importance of online advertising to the 'fractional savvy' consumer above other forms of media, and offered attendees a 'tongue in cheek' money back advertising challenge, which probably made all those representatives from the iconic brands he compared his organisation to cringe - (Editor's note: we're with you all the way online Greg, and happen to love all the brands that make the fractional marketplace what it is)
The conference was rounded off by Dick Ragatz moderating the Ultimate Q and A, and an entertaining conversation ensued between an attendee requesting clear definitions of the types of fractional products available today from the expert panel. "I've asked 9 attendees to give me a clear overall definition of the fractional ownership marketplace and I've had 12 answers - can the panel help?" he said. The industry experts couldn't decide. Maybe this is one of the challenges the fractional ownership industry faces over the next 12 months.
