Differentiating Between Private Residential Clubs, Fractionals, Destination Clubs & Condotels

By Steven Ferry Chairman, International Institute of Modern Butlers | October 28, 2008

It is hardly surprising buyers and media alike are confused by the different models available to guests for vacations when a good part of the industry is, too. Which makes the two upbeat and well-attended IMN symposiums in Orlando between April 18 and 20 most timely.

So what are these alternatives? Let's define terms first:

Fractional interest projects, like Private Residence Clubs (PRCs) below, sell deeded ownership or shares in vacation homes, from 1/17th to 1/4 shares that allow the partial owners between three weeks and three months use of their property on a fixed, rotating calendar. Product quality and service/amenity levels are lower than PRCs, and prices tend to be under $1,000 per sq. ft. (average $630 per sq. ft.). Rental program options exist and owners can trade with other owners.

Private Residence Clubs (PRC) are targeted at higher-end customers willing to pay $1,000 per sq. ft. (for average 1,800 sq. ft. properties) or $250,000 per share on average and looking for a 4-5* experience in multiple locations. They offer different membership classes as well as equity in the residences.

Destination Clubs (DCs) Over twenty DCs are in operation with an inventory of 700 homes shared currently by over 5,000 members with 30-year memberships (generally) that confer the right to use any of a selection of properties, and provide for refunds of membership fees. Some of the clubs do provide equity and some panelists felt DCs not providing equity would see a slowdown until big brand names lent their credibility (and they are reticent to do so until the grey area of lack of equity is resolved). The average residence is 2,700 sq. ft. and valued at about $2.7 million. The average membership fee is $400,000, the lowest being $35,000 and the highest $3 million, with annual dues ranging from $5,000-$30,000. DCs have existed for the last decade, although the market heated up about four years ago with the arrival of Exclusive Resorts' luxury DCs, which currently own over 50% of the market. DC's exist based around themes such as wine, fly-fishing, polo, ranch life, and yachts.

Hotel condominiums/condotels First appearing in the 1970s, these lost their popularity with the Tax Reform Act of 1986, but have come to the fore again. Individual buyers own and stay in them from one-to-two months a year and then have the option (usually exercised) of putting them into a pool for the hotel to rent (and also maintain) for the balance of the year. The owners share in the revenues and so offset their costs while having access to the amenities and services of the hotel when they are in residence. Typical purchase costs are from the several hundred thousand to several million. Examples include Ritz Carlton Grand Cayman and The Setai in Miami. Condotels are popular with lenders and developers because they provide up front operating funds and shift some of the risk to the owners/their lenders, as well as allowing higher sales prices in view of the amenities offered and the rental program. One downside is the development hotel, residential, condo, finance equity participation, and mortgage loan, all have to be married into a single transaction called a condotel-one of the reasons that lawyers are recommended as early participants in developing condotels. The rental program is considered a security, for instance, requiring compliance with SEC regulations.

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Coming up in February 2018...

Social Media: Engagement is Key

There are currently 2.3 billion active users of social media networks and savvy hotel operators have incorporated social media into their marketing mix. There are a few Goliath channels on which one must have a presence (Facebook & Twitter) but there are also several newer upstart channels (Instagram, Snapchat &WeChat, for example) that merit consideration. With its 1.86 billion users, Facebook is a dominant platform where operators can drive brand awareness, facilitate bookings, offer incentives and collect sought-after reviews. Twitter's 284 million users generate 500 million tweets per day, and operators can use its platform for lead generation, building loyalty, and guest interaction. Instagram was originally a small photo-sharing site but it has blown up into a massive photo and video channel. The site can be used to post photos of the hotel property, as well as creating Instagram Stories - personal videos that disappear from the channel after 24 hours. In this regard, Instagram and Snapchat are now in direct competition. WeChat is a Chinese company whose aim is to be the App for Everything - instant messaging, social media, shopping and payment services - all in a single platform. In addition to these channels, blogging continues to be a popular method to establish leadership, enhance reputations, and engage with customers in a direct and personal way. The key to effective use of all social media is to find out where your customers are and then, to the fullest extent possible, engage with them on a personal level. This engagement is what creates a personal connection and sustains brand loyalty. The February Hotel Business Review will explore these issues and examine how some hotels are successfully integrating social media into their operations.