Fractional Ownership Where Everyone Wins

By Michael Waddell Managing Director, INTEGRITYOne Partners | September 02, 2010

Imagine a real estate scenario where investors enjoy higher margins, developers plus sales and marketing teams enjoy decreased costs, managers enjoy streamlined operations, buyers enjoy the very real perception of getting more than they paid for, everything is legal, and everyone is happy. Welcome to the world of fractional ownership.

The term "fractional" here refers to the concept of second-home purchasers obtaining a deeded partial interest in a specific part-time or vacation residence. Interests can range from four to 13 weeks per year. Fractionals may be individual homes or villas sharing major attributes. They offer the benefit of second home ownership at a fraction of the cost of full ownership and carry no maintenance responsibilities. Many fractional developments are affiliated with luxury hotel companies, lending them added cachet and the promise of assured market value.

Sounds Like a Timeshare

That's the knee-jerk view. Closer examination, however, will reveal dramatic differences. Like timeshares, fractionals identify a specific unit that can be purchased for a prescribed amount of time per year. And like timeshares, many fractional properties are located in popular beach, golf, and ski areas and sometimes offer exchange options. But the comparisons pretty much end there.

Unlike most timeshares, fractionals are not merely small ownership slices of vacation properties. They are a hybrid vacation option specifically designed and developed to appeal to affluent households. Small entrepreneurial developers have achieved remarkable success in this market, and as a result, all of the major hospitality brands have some commitment to fractional real estate.

Among fractionals, basic amenities, such as exercise and pool facilities, are viewed as costs of entry. Beyond this, there is a growing list of "must-have" amenities associated with the fractional market. Fractional owners are looking for a high-end vacation experience that offers a luxurious recreational lifestyle for a prescribed portion of the year. Amenities, therefore, often include luxury linens, high-quality towels and robes, showers with multiple shower heads and steam, built-in bars, high quality cocktail glasses and stemware, gourmet ranges and high-end appliances, fully stocked kitchens, and of course, the latest in technology. Flat-screen televisions with DVD players are present in every room, along with wireless technology and iPod interfaces.

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The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.