Fractional Interest Conference Attracts 750 Attendees

Resort Real Estate Event Reports on Industry’s Dramatic Growth

San Francisco, CA — March 28, 2008 – For the eighth consecutive year, shared-ownership/use resort developers converged on San Francisco to learn about the burgeoning growth of their industry, which grew 8.3% over 2006, despite of dramatic decreases in the country’s overall real estate market.
According to conference host and consulting veteran, Richard Ragatz, Ph.D., the 750 participants in this year’s three-day gathering at the Fairmont Hotel came from 41 states and 17 countries. Attendance increased 40% over 2006 and like the previous year, the conference was sold out. Ragatz is founder of Ragatz Associates of Eugene, Oregon.

Dr. Ragatz released the findings of his much-anticipated annual research paper, the 2008 Edition of The State of the Fractional Interest Industry. The survey found there are some 300 fractional interest projects in North America and the Caribbean, along with 21 destination clubs, offered by 16 companies. Of the 300 developments, 72 percent are in the United States, 15 percent are in Canada, five percent are in the Caribbean and eight percent are in Mexico. Colorado, California and Florida contain 26 percent of all developments. Of the 153 active developments, 55 percent are fractional interests projects (less than $1,000 per square foot) and 45 percent are private residence clubs (PRCs) – over $1,000 per square foot. Most of the 147 inactive developments are older, sold-out fractional interest projects.

The three main components of shared-ownership/use developments include fractional interest projects, (PRCs) and destination clubs. Fractional interest projects and PRCs are similar and typically sell deeded ownership in shares of vacation homes or resorts, ranging from 1/20 share with two weeks of annual usage to a ¼ share with three months of annual use. While use plans vary from project to project, the most frequent sizes for fractional interest projects are 1/4s (34 percent), 1/10s (21 percent) and 1/8s (21 percent). PRCs are generally 1/8, 1/12s and 1/10s.

On-site amenities and services are extensive. Developed and sold by individual developers with a single site to larger, branded luxury hotel companies with multiple sites, prices range widely, averaging from about $173,000 per share for fractional interests, and $374,000 per share for private residence clubs. Per week and per square foot prices tend to decrease as the size of the unit and share increase. Annual maintenance fees average $7,835 per share, ranging from $5,135 among fractional interest projects to $10,290 among private residence clubs. On a per-week basis, such averages are $710 and $2,070 respectively.

The average price for a membership in the 21 destination clubs is $305,000. The average residence in the clubs has a reported value of $2.6 million and contains 3,000 square feet. The average term is 30 years and average ratio of members per residence is 7.5. There are approximately 6,400 members in the 21 clubs that were surveyed.

Although regulated similarly to timeshares in most states, a fractional involves a longer period of use and is considerably more expensive to purchase and maintain. Destination clubs typically sell 30-year memberships on a non-equity basis into a wide network of vacation homes in multiple locations. There is generally a refund policy when members leave the club.

Ragatz estimated that total sales volume in the shared-ownership/use industry in 2007 was $2.3 billion, which included new closed sales, presales and resales. This represented an industry growth of 8.3 percent, despite downturns in the country’s overall residential-resort industry.
According to Dr. Ragatz, “The future looks bright for properly planned fractional interest projects and private residence clubs. However, developers should not view the concepts as saviors to failed whole-ownership condominium projects or other such real estate.”

Various feasibility analyses, consumer surveys and focus groups recently conducted by Ragatz Associates strongly indicate a growing public awareness, acceptance and interest in purchasing all three components.

For additional information, visit www.ragatzassociates.com.