New Decade – New Visions

A Primer on Fractionals and Private Residence Clubs

In response to a recent Resort Trades’ Survey, we learned that reader preferences include articles that describe the direction of the resort industry, how companies are overcoming challenges, and what they anticipate in the future. In this second State-of-the-Industry article, Ragatz Associates has shared current statistics from its 20th annual report, Shared-Ownership Resort Real Estate Industry in North America, which includes Fractional interests (FI) and Private Residence Clubs (PRC).

Richard Ragatz, Ph.D. has been tracking the performance of the industry since 1999. Sales volume for FIs and PRCs peaked in 2007, the year before the recession hit. In that year, sales volume was $1.7 billion. Over the past 10 years, it has averaged $237 million.

Definitions

Both FI and PRCs typically sell deeded ownership in shares of vacation homes, ranging from a 1/15 share ¬¬– with three weeks of annual use – to a 1/4 share – with three months of annual use. However, they vary in terms of price, product quality, and degree of services and amenities. Ragatz Associates assumes that product selling for less than $1,000 per square footfalls into the fractional interest category, and product selling for more than $1,000 per square footfalls into the private residence club category.

Industry Size/Location/Sales

Some 319 North American FI projects and PRCs were identified in the Ragatz survey. These developments are 67% in the United States, 17% in Canada, 9% in the Caribbean, and 7% in Mexico. (Colorado and California contain 19 % of all developments. Of the 319 total projects, only 42 were actively selling new products in 2019. This is down from 153 in the peak year of 2007. Total sales volume in 2019 from the 42 active projects was about $198 million. (PRCs generated about 84% of this total.) This was the highest sales volume in the past three years, up from $184 million in 2018 and $175 million in 2017, with sales fairly consistent over the past ten years. Most of the 277 inactive developments are older, sold-out modest-quality projects. By contrast ¬¬– according to ARDA – timeshare sales in 2018 reached $10.2 billion with about 1,580 resorts in the U.S.

Prices/Sizes

Average prices per share range from $161,500 for FIs to $248,000 for PRCs, or $22,200 to $64,475 per week, respectively. On a per-square-foot basis, they are $630 and $1,800, for an overall average of $1,320. The overall average maintenance fee is $1,750 per week, as compared to $1,000 for a resort timeshare week. While the average timeshare unit is just over 1,000-square-feet, fractionals average about 1,635-square-feet. The most popular size of share is a 1/8, providing owners six weeks of annual use.

Services/Looking ahead

On-site amenities and services are extensive in this industry, especially at the private residence club level. However, there was a trend in 2019 (as in recent years) to have fewer on-site services in order to conserve on annual dues. At the same time, there was a trend to provide more owner benefits such as rental and resale programs and external exchange. In its annual report, Ragatz Associates believes shared ownership will rebound in the future since the product is a concept based on personal use, rather than speculation and the fact that buyers prefer purchasing only the amount of time they can use and spend, in addition to exchange potential. Their consumer research suggests the decline in the industry’s sales performance since the last quarter of 2007 has been more due to external factors such as the economy and lack of financing, and less due to lack of consumer interest in the concept.

About Ragatz Associates

Founded in 1974 by Dr. Richard Ragatz, Ragatz Associates is an international consulting and market research firm in the resort real estate industry. They have worked on over 2,500 assignments in the resort real estate industry in 48 states and over 70 countries. The company specializes in the shared-ownership industry, including fractional interests, private residence clubs, and resort timeshare. Tracy Ragatz and Roberta Cordell, serve as Senior Vice Presidents. Tracy is responsible for conducting the survey.

Marge Lennon has had a front-row seat to the growth of the timeshare industry since 1978 and most enjoys writing about its entrepreneurial developers and their amazing staff. Contact her at Marge@LennonCommunications.com.