Introduction
This document is
an Executive Summary of a larger survey conducted by Ragatz
Associates of the shared-ownership resort real estate industry in
North America as of March 2011. Included in this overall sector of
the resort real estate industry are three components: fractional
interest projects, private residence clubs and destination clubs.
The first two
components are similar, in that both typically sell deeded ownership
in shares of vacation homes, ranging from a 1/15 share with three
weeks of annual use to a 1/4 share with three months of annual use.
However, the two components vary in terms of price, quality of
product and degree of services and amenities. Ragatz Associates
simply assumes that product selling for less than $1,000 per square
foot falls into the fractional interest category, and product
selling for more than $1,000 per square foot falls into the private
residence club category.
A destination
club typically sells 30-year memberships on a non-equity basis into
a wide network of vacation homes in multiple locations. Some clubs
are equity-based, however. The concept is further characterized by
a refundability policy when members leave the club.
The survey
represents our 11th annual edition. Once again, it is thought to be
the most thorough and comprehensive survey conducted of the
industry.
Size of the
Industry
Some 292
fractional interest (FI) projects and private residence clubs (PRC)
were identified in the survey, along with five destination clubs.
Of the 292 developments, 104 actually made some sales in 2010, as
did all five destination clubs. The 104 FI and PRC projects were
the primary focus of the survey.
Included in the
292 developments are 69 percent in the United States, 17 percent in
Canada, six percent in the Caribbean and eight percent in Mexico.
The two states of Colorado and California contain 21 percent of all
developments. Of the 104 active developments, 63 percent are
fractional interest projects and 37 percent are private residence
clubs. Most of the 188 inactive developments are older, sold-out
fractional interest projects.
In the survey for
2009, there were 125 active projects that had made sales that year.
Some nine new projects started sales in 2010, meaning that 30 of the
active projects in 2009 dropped from the list. A few of these may
have attained sell-out, but most simply ceased sales due to the
country’s economic condition. Also, some were actually in sales,
but did not make any sales.
It is estimated
that total sales volume in the shared-ownership industry in 2010 was
$530 million. This amount includes new closed sales, presales, and
resales. When looking at the three individual components, sales
volumes were $107 million in fractional interest projects (20
percent), $242 million in private residence clubs (46 percent), and
$181 million in destination clubs (34 percent).
In accord with
many other goods and services in the United States, sales volume in
the shared-ownership resort real estate industry declined in 2010.
The total sales volume decreased from $860 million in 2009 to $530
million in 2010, or 38 percent. Decline occurred with all three
components, including 29 percent for fractional interests, 53
percent for private residence clubs, and seven percent for
destination clubs.
In 2010, the
average annual sales volume in the 104 active projects was $1.2
million for fractional interest projects and $6.1 million for
private residence clubs. However, if excluding the top six private
residence clubs, the latter figure would decline to $3.2 million.
Of the total 104 active projects, six percent had sales over $10
million, while 34 percent had sales of less than $1 million.
On a longer-term
trend in sales volume for the entire shared-ownership resort
industry, totals were $1.54 billion in 2004, $1.97 billion in 2005,
$2.12 billion in 2006, $2.30 billion in 2007, $1.52 billion in 2008,
$860 million in 2009, and $530 million in 2010.
Several critical
factors combined in 2010 to create the perfect storm for the decline
in the sales performance of the overall shared-ownership industry.
These same factors also negatively impacted the market in 2009.
-
the uncertainty
of the country’s long-term economic stability
-
an almost
complete lack of consumer financing
-
decrease in
primary home equity funds for purchasers who previously paid cash
-
concern with
making “conspicuous consumption” purchases
-
lack of
marketing funds
-
a glut of
whole-ownership vacation homes on the market, with significantly
decreasing prices
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Prices
Prices in the
shared-ownership industry range widely. For fractional interest
projects, selected average prices include $121,000 per share,
$17,600 per week (when dis-aggregating shares to an individual
weekly basis), and $550 per square foot. Among private residence
clubs, these averages are $271,000 per share, $56,000 per week, and
$1,650 per square foot. Per week and per square foot prices tend to
decrease as the size of the unit and share increase. In comparison
with 2009, average prices decreased by $30,000 per share (15
percent), by $2,900 per week (nine percent), and by $55 per square
foot (six percent).
Per square foot
prices also vary significantly by country, e.g., from $590 in
Canada, to $750 in Mexico, to $835 in the Caribbean, to $1,100 in
the U.S. They also are higher in ski communities and at
developments offered by branded hotel companies.
Annual
maintenance fees average $6,565 per share, ranging from $5,200 among
fractional interest projects to $9,820 among private residence
clubs. On a per week basis, such averages are $875 and $2,125,
respectively.
Operating costs
(including marketing, sales and general administration) remained
fairly constant in 2010 compared to previous years, at about 19
percent of the overall sales volume. This includes 20 percent for
fractional interest projects and 15 percent for private residence
clubs. Product costs are about 55 percent, including 54 percent for
fractional interest projects and 58 percent for private residence
clubs.
Product
Characteristics
Upon completion,
the average development will contain 47 units. Some 68 percent of
the units are either two-bedrooms (39 percent) or three-bedrooms (29
percent). Among all units, the average size is 1,525 square feet.
There are at
least nine different sizes of shares being sold. Most frequent
sizes for fractional interest projects are 1/8s (32 percent), 1/4s
(27 percent), and 1/12s or less (26 percent). For private residence
clubs they are 1/12s (33 percent) and 1/10s (25 percent). In
efforts to have lower prices in accord with declining market
conditions, there was a tendency in 2010 to have smaller shares,
fewer bedrooms and lesser floor areas. On-site amenities and
services are extensive in the industry, especially at the private
residence club level. The majority have a private concierge,
pre-arrival food and beverage stocking service, valet parking,
transportation service, etc. However, there was a trend in 2010 to
have fewer on-site services in order to conserve on annual dues. At
the same time, there was a trend to provide more owner benefits such
as rental and resale programs, and external exchange.
Destination Clubs
The average price
for membership in the five destination clubs is $315,000. The
average residence in the clubs has a reported value of $3 million
and contains 3,500 square feet. The average term is 30 years, and
the average ratio of members per residence is 8.0. Approximately
4,250 members are in the five clubs.
Future Trends
It is widely felt
in the resort real estate industry that shared-ownership resort real
estate will rebound more rapidly and more strongly than
whole-ownership resort real estate as the country’s economy
recovers. Reasons include being a concept that is based on: (1)
personal use rather than speculation; (2) being able to purchase
only the amount of time that have vacations to use and discretionary
income to spend on; (3) lowering household spending habits and
capabilities; (4) being hassle-free, i.e., “show up and enjoy;” and
(5) the opportunity for flexibility and variety of use due to the
external exchange process.
Based on over 37
years of experience in the resort real estate industry, we fully
expect the shared-ownership industry to once again be on a
significant growth track as the national economy further
stabilizes. Our extensive consumer research strongly suggests that
the decline in the industry’s sales performance from the last
quarter of 2008 through 2010 was much more due to external factors
such as the economy and lack of financing and much less due to lack
of consumer interest in the concept.
The complete
report is available for purchase from
Ragatz Associates.
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