Ragatz Associates
Fractional Interest Conference 2010
Conference overview, by Ed McMullen Jr.
The 2010 Ragatz Associates fractional conference was well worth the time and money to Learn, Share, and Connect in the challenging market we all find ourselves. As outlined in the 2009 Research report by Ragatz associates the performance statistics for the fractional business worldwide were generally down across the board however the bright spot is that the fractional product concept overall is not down as much as whole vacation home values in the same markets, and the markets where supply, or future density is still limited will hold prospects for a brighter future as the economy recovers and consumers regain confidence. 2010 and most likely 2011 will remain challenging for most everyone but the top quality locations and operators will see modest gains as real estate fundamentals turn up.
Brands: The visible exodus of hospitality brands (Except Fairmont) from the market place has left a void which is noticeable for new project development, marketing and sales however my impression is that this is only temporary until the Hospitality Brands gain greater control of their shared ownership businesses, access to capital improves and the hotel business overall regains stability and then they will return and regain market share quickly. What this would indicate to is that there is a window of opportunity to well positioned single sites and independent networks to sharpen their skills and strengthen their own brand promises for customer loyalty now. The role of an Exchange Company seems to be increasing in value as current owners push for more value, flexibility experience options beyond the real estate interest that may have been their initial motivation for purchase. Even stated there is much concern over the quality control and client differentiations from traditional timeshare exchange and PRC/Fractional accommodations, service levels and limited availability across quality fractional locations.
New Products: In addition to the traditional real estate product vacation homes, or condominiums we should expect to see other high priced products enter the fractional model such as yachts, more planes, and RV’s as Boomers and other demographics look for ways to get more out of life for travel, family, health, and wellbeing than just fee based real estate.
While there is still a very positive interest in fractional vacation home option but one of the Achilles heals of the sales (Old and New) is the ongoing service, and ownership costs for a fractional/PRC. This will push developers and HOA’s to invite rentals and more ala cart menus of services and amenities so that owners can have greater control and find ways to subsidize ownership costs. The ongoing costs are a big barrier of new sales and there seems to be a large gap of these costs between Brands and Non-Brands. Non-brands have an advantage with lower costs of delivery, a competitive advantage over Brands.
Marketing and Sales: The marketing and sales of the fractional product today presents challenge and opportunity. Most all companies find themselves short on cash to spend on marketing which is a challenge for sales but the silver lining is that this is requiring sales organizations to be more efficient and creative. The customer wants to be engaged, they want an experience, they are seeking value, quality time with loved ones and our sales teams need time to build relationships, value, and confidence in buyers. The combination of a more engaged marketing and selling process (Step by step) shows signs of success in those companies who have product which can be used in a form of buyer’s trips, or discovery events. The sales cycle from casual interest to active buyer is longer and the customer is more patient/cautious than before placing more emphasis on value and necessity of a deliberate and professional sales process, communications, and CRM tools to be successful. The traditional mix of marketing programs from PR, Media, direct Mail, Internet, Intercept, and Co-brokers programs have all required review and renewal for effectiveness in this new economy. Intercept marketing use to be a major source of short term sales but with today’s more discriminating buyer the channel acts more like a lead generated from the internet , placing great importance to that first impression and established client connection which over time can build a relationship, trust, confidence and engage sales. In our own sales cycle we have seen our timeline from introduction to contract lengthen to 8 to 12 months and one or more site visits.
Pricing: A lot of concern and discussion over pricing and examples of when not properly executed means disaster. How should a new property consider initial offerings? How should an existing property right size price for current market and sales momentum? How should developer pricing and resale listings cohabitate for best results? What role is there for incentives, financing, or other concessions? How should Bank defaults, short sales, and foreclosures be addressed? This topic brought forward a lively debate and each question has different recommendations based on the specific property, market place or business condition however there were two important lessons learned here. One that if a developer drops price significantly for one reason or another the damage to values is only half the battle and may not be the biggest negative given the loss of owner confidence and their individual ownership values and the developer’s loss of referral business and reloads which have been paramount to most sales teams in this economy. A Second lesson is that the resale practice of the developer either in conjunction with developer sales or as an owner service is that it requires a commitment to, Owner education for proper expectations for resale (Timing, costs, and pricing), communications to owners for use options so that resale becomes less interesting unless strictly economic (Exchange, Rental, Adventure travel), and dedicated sales channel as selling a fractional is a specialty and when left to the general real estate market place realtors have not performed the service necessary for satisfaction. Either the developer or the HOA should both consider resale’s to maximize operations, stabilize HOA’s, support property value and strengthen owner/product satisfaction.
Financing: What financing, there isn’t any! Well I could just stop here and the truth would be spoken however financing in traditional means may be nonexistent but as the capital markets recover and fractional sales begin to show strength we should see lenders return to the fractional space.
The summer season is almost here and I wish everyone a safe, healthy and prosperous 2nd and 3rd quarters.
For more information please visit McMullen Development.com or EmeraldGrande.com