Brief History of Fractionals (Co-ownership)

(Excerpts from an Industry Overview of the Luxury Fractional and Private Residential Club by Hobson Ferrarini Associates)

Fractional ownership is rapidly growing as an alternative to full ownership of vacation homes. Fractional vacation homes are not a new concept. Vacation homebuyers have, for decades, split ownership and use of second homes to defray costs for vacation properties that are often used infrequently. Historically, the one-quarter fractional has been the time-tested resort product and has sold successfully for many years to unrelated parties. In these developments, however, services, project amenities, and management are often minimal, particularly at the lower and mid-range of the market.

Within the last few years, a new and refined variation of the fractional vacation home has taken root. This new concept is evolving rapidly with accelerating interest from the market. The new fractional product is an upscale luxury home that often incorporates a private residential club (PRC) to appeal to the affluent buyer at the highest end of the household income scale (Ritz Carlton – Hyatt – Four Seasons). There are also new mid-priced fractional products being developed that are designed and priced to appeal to upper middle-income households.

High disposable income is associated with more leisure time and a preference for luxurious surroundings. In response to a desire for more use of an upscale vacation property than is offered by timeshare, but without the cost and responsibilities of a wholly-owned second home, fractional interest in luxury condominiums are experiencing strong untapped demand.

Although the vast majority of the recently completed fractional projects are located in the Rocky Mountain ski areas, the concept is spreading rapidly to other popular national resort destinations in the United States, the Caribbean, and Mexico. In addition to ski resorts, these destinations include golf resorts and beach resorts. Fractional Co-Ownership works best in resort areas where the real estate prices are very high.

The luxury fractional buyer can afford a wholly owned vacation home, but may have difficulty justifying the investment due to infrequent use. The fractional buyer wants extensive amenities (near a beach, golf course or ski resort, a fitness center, club room, barbeque area, luxurious pool, Jacuzzi and landscaping, bikes, kayaks, laundry facilities, and full-time storage lockers) and hotel services (daily maid service, concierge, on-site maintenance and management) that are usually not available with wholly owned homes or condos. The fractional buyer is a repeat visitor to the resort area in which the property is located, often visiting more than once per year. It is essential for the management and sales staff to understand they are selling real estate, not vacation time. Shares of fractionals are typically sold in fractions from 1/6^th to 1/13^th. Fractional ownership is usually evidenced by a deed representing a fee simple fractional interest in a specific housing unit for a specific amount of time, plus an undivided interest in the common area.