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.