Fractional Ownerships: Advantages Over Timeshares or Blurred Distinctions Between the Two?

By William A. Brewer III Managing Partner, Bickel & Brewer | November 23, 2009

Fractional ownerships have emerged as the hot new trend in the hospitality industry. Fractional ownerships enable multiple individuals to own a specific piece of real estate in common, with each holding a deed for an undivided share in the property that may be bought, sold, traded, or bequeathed like any other real estate asset.

In addition, much like a timeshare, each interest entitles its owner to possession of real estate for a certain amount of time each year. However, in timeshares, the "owner" typically purchases only a contractual right to occupancy, not an interest in real property. Thus, the critical difference between the two concepts is in the nature of the investment.

Fractional ownerships are considered by many to be the perfect vacation real estate vehicle for those wishing to own a home away from home without the expenses associated with single ownership such as maintenance, upkeep, refurbishment, and improvements. However, unlike the typical timeshare, fractional ownerships have generally been associated as real estate instruments for the wealthiest of consumers. Thus, fractional ownerships tend to be associated with properties of much higher value. They often come with five-star quality amenities, and individual possession typically spans months instead of weeks. These qualities have spawned the birth of a new market for those who want something more personal than a typical one-week timeshare, but do not want to spend mega-sums on a second home that will be empty most of the year.

Fractional ownership enjoys an additional benefit - appreciation. While timeshares typically depreciate in value, fractional ownerships have shown much greater resilience. Experts attribute this resilience to the relative newness of fractional ownerships in the hospitality industry and their perceived similarity to luxury vacation home "ownership."

If developers of fractional ownership projects benefit from the perception of "ownership" by prospective buyers, then it would seem important to maintain this quality as a distinction from timeshares. Fractional ownerships are subject to the same regulations as timeshares. In many jurisdictions, laws that regulate timeshares apply equally to fractional interests, as these laws typically apply to arrangements in which one has the right to use real property on an annual basis for a period of less than one year.

However, unlike fractional ownerships, timeshares usually take the form of lease agreements or equity interests in a club, and oftentimes pertain to a collection of individual properties as opposed to a specific property. Thus, fractional owners enjoy both the protections afforded timeshares and the security that comes from individual deeded property.

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Sales & Marketing: Selling Experiences

There are innumerable strategies that Hotel Sales and Marketing Directors employ to find, engage and entice guests to their property, and those strategies are constantly evolving. A breakthrough technology, pioneering platform, or even a simple algorithm update can cause new trends to emerge and upend the best laid plans. Sales and marketing departments must remain agile so they can adapt to the ever changing digital landscape. As an example, the popularity of virtual reality is on the rise, as 360 interactive technologies become more mainstream. Chatbots and artificial intelligence are also poised to become the next big things, as they take guest personalization to a whole new level. But one sales and marketing trend that is currently resulting in major benefits for hotels is experiential marketing - the effort to deliver an experience to potential guests. Mainly this is accomplished through the creative use of video and images, and by utilizing what has become known as User Generated Content. By sharing actual personal content (videos and pictures) from satisfied guests who have experienced the delights of a property, prospective guests can more easily imagine themselves having the same experience. Similarly, Hotel Generated Content is equally important. Hotels are more than beds and effective video presentations can tell a compelling story - a story about what makes the hotel appealing and unique. A video walk-through of rooms is essential, as are video tours in different areas of a hotel. The goal is to highlight what makes the property exceptional, but also to show real people having real fun - an experience that prospective guests can have too. The June Hotel Business Review will report on some of these issues and strategies, and examine how some sales and marketing professionals are integrating them into their operations.