Daily Real Estate News  |  August 10, 2006  |   For Many, Vacation Fractionals Make Sense
As the cost of vacation home ownership continues to rise, more potential owners are looking to alternatives such as fractional or shared ownership.

In 2005, total sales volume in the fractional-interest industry was about $2 billion, a 28 percent increase from 2004, according to an annual industry survey of developers and property owners conducted by Ragatz Associates, an Oregon-based consulting and market research firm.

The leading motivation for a potential purchase was “the advantages of owning a second home without the disadvantage of high costs associated with whole ownership,” followed by “investment or equity appreciation.”

Idea Stems from Ski Resorts

The fractional concept was pioneered at ski resorts. And pricey ski locales such Telluride, Colo., continue to be hot spots for fractionals. “We’ve had that product in our market for about 15 years,” says George Harvey, a broker-associate with Telluride Properties. “It’s a wonderful way for people to enjoy your community, and my experience in Telluride is that those fractional products are highly attended. The occupancy rate is high, so it’s a benefit for the whole town” in terms of consumer spending.

With single-family home prices ranging from $1 million to $20 million in Telluride, fractional ownership expands ownership opportunities to a new clientele, according to Harvey, who is a member of NAR’s Resort Committee. “Practitioners new to the concept sometimes are concerned that fractional products will take buyers away. Quite the opposite is the true. Fractionals bring in a whole new buyer who wouldn’t have been in the market anyway.”

Developers usually work with the local practitioners in much the same way as they would for a traditional product, and resales typically filter out to the real estate community. Additionally, Harvey says, his experience in Telluride is that 25 percent of fractional owners eventually purchase a wholly owned product.

From Condos to Clubs

Fractional real estate ranges from condos or homes that sell for less than $500 per square foot to Private Residence Clubs, which Dick Ragatz, president of Ragatz Associates, describes as a “five-star product in a five-star location” that cost $1,000 per square foot or more. As prices go up so to do the amenities and the amount of time owners can use the property. The highest-priced products offer a liberal amount of guaranteed usage.

Private Residence Clubs and other fractional projects are found in 29 states. More than one-quarter are located in California and Colorado resorts that have a national or global appeal. Future development is likely to be in top regional resort destinations, says Ragatz.

— By Camilla McLaughlin for REALTORŪ Magazine Online