Report on Ragatz Fractional Interest Conference

Well, we’re back- jet lag has now (almost) dissipated so I can tell you all about this year’s Ragatz Fractional Interest Conference. What we took away from the conference is probably best run-through as loose bullet points with expansion on particular areas in forthcoming FL features. So without further ado, let’s run through some of what we heard-

It’s been a tough year or so but much of the hurt was felt in the middle-range of fractionals (Fractional Property- not so much the upper end Private Residence Clubs) and in the widely reported Destination Club failures. Yet despite sales volumes dropping off the prices had remained fairly constant on a $ per square foot basis but clubs are offering more flexible, and often smaller, shares.

Although for every doom-laden cloud there’s a silver lining- Exclusive Resorts, for example spoke of how their DC market share would grow as a result of casualties and in the face of some of the DC concept criticism that has been bandied around Jeff Potter said that it was a ‘yet to be matured industry and that the concept works’.

Price was obviously a hot topic with the message being that one must offer a greater range of services and amenities to members but without increasing prices/dues. That means clubs reviewing what facilities members actually use and tailoring services accordingly. But fractionals are all about service- as RJ Gallagher of R.J. Gallagher & Associates, Inc. explained “(fractional) is about selling the lifestyle experience so do not cut services just to lower costs as the experience is the service.” On a related note there was a great deal of talk on the increasing proliferation of exchange programmes- up to 66% of all shared-ownership scheme offer such a service, up 6% on 2007 and continuing on that upward trend for 2009.

But troubles aside, the widely held belief was that the fractional ownership as a whole will be the first to emerge from the economic crisis. There is still intense activity, especially with those who are having trouble selling whole ownership looking to fractionalise as an alternative. On that point we learned that it wasn’t quite as easy as just switching from whole to fractional and there are a number of considerations that one should undertake before making the leap to establish whether the project is suitable. As Dr Ragatz himself said “(Fractional is) poised for a significant future even in a down economy.”

Financing reared its head again and again and was addressed in a number of different ways but the bottom line was that although there are a small number of fractional financing products available the market had shrunk somewhat but ultimately fractional, particularly the higher end products are aimed at individuals who opt for fractional as a lifestyle choice. They could afford whole ownership but prefer fractional so lack of financing is not a barrier to entry for such high-net worth individuals with ready cash.

What was truly interesting about the whole conference is that this truly is a product that those in the industry believe in and are passionate about. You might think that should be a given but in many industries the end user is merely there to be milked of cash and somehow hoodwinked in the process- high profit margins on premium prices charged for distinctly sub-premium

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