Luxury Real Estate

By Carl Peralta of 77 Great Estates

Fractional real estate developments are cropping up around the globe, selling partial ownership of luxury residences. Here’s what you need to know before you buy.

Fractional Residences Explained

If you’ve been in the market for a vacation home in the past few years, you’ve undoubtedly heard about fractional residences. This new upscale spin on the tired timeshare offers shared, deeded ownership of luxury homes in some of the world’s most popular resort areas.

Fractional ownership promises five-star amenities and services, access to prime recreation—from golf to skiing to fly-fishing—and above all, the chance to own a multimillion-dollar residence, or at least part of one, for a lot less than the cost of whole ownership.

Why buy?

A share in a fractional residence is deeded real estate ownership that you can sell or pass down to your children, just as with a traditional real estate holding. The factors that distinguish fractionals from timeshares are not only a high level of luxury—and cost—but also greater access to the property, though these factors vary from fractional to fractional.

One notable perk of fractional ownership is that it reduces the hassles inherent in owning a vacation home—the management company takes care of maintenance and security. That means you won’t need to worry about closing the pool for the winter or hiring someone to look in on your home while you’re away.

As an added draw, most fractional developments offer an extensive suite of concierge services. Ski passes delivered to your door, a stocked refrigerator upon arrival and even help with your travel arrangements are all par for the course.

Where to Buy

Fractional residences are available in just about any area that’s popular with second homeowners:

• Golf resorts, including Scottsdale, Ariz., and La Quinta, Calif. • Ski areas, including Colorado’s Aspen, Telluride and Snowmass • Beach resorts, including Cabo San Lucas (on the tip of Mexico’s Baja Peninsula), St. Thomas and the coast of South Africa • International destinations, including Italy, France and Dubai

Just as with buying a vacation home, location can also affect resale value. Beachfront trumps oceanside. Ski-in/ski-out tops a drive to the slopes.

With fractional ownership, you can buy into an expensive real estate market at a fraction of the cost of whole ownership. Take Aspen, for example. In mid-2008, more than half of all houses and condominiums for sale in this tony ski town had asking prices topping $3 million. The way into Aspen for under a million bucks (other than a fixer-upper condo with a kitchen from the 1970s) is fractional ownership, with options available from St. Regis and Ritz-Carlton, among others. Fractionals can also help you buy in a market where there isn’t much new construction, like Calistoga in California’s Napa Valley.

Is the brand name worth it?

Another consideration is whether to go with an established brand – like St. Regis Residence Club, Ritz-Carlton Club, Fairmont Heritage Place or Timbers Collection – or a one-off development.

Big names offer consistency and a certain level of quality control, and sometimes offer extras like discounts on hotel rooms in their network, or last-minute stays in unreserved fractional units for a nominal fee. The flip side of the coin is that the bigger brands often go for condo communities over freestanding residences or cottages, and may lack some of the local charm of their independent counterparts.

The biggest perk of joining established brands is that they typically have developments in multiple locations. Owners can participate in an exchange program that allows them to swap weeks at their main location for time at residences in other communities. These programs are often based on complicated points systems that don’t operate at a one-to-one exchange rate.

Guaranteed Use & Reservations

Depending on the development, a buyer can get 4, 6, 8 or more weeks a year of guaranteed use. The size of your share will determine how much access you have to the property, so be sure the share isn’t too small—or large—for your needs. Some owners buy multiple shares to increase their number of vacation weeks.

Getting the home you want

The key question is, can you actually reserve the home when you want it, year after year? Landing reservations during sought-after holiday weeks can be particularly challenging at fractional developments in ski communities, for example, where the prime vacation period lasts only a few months.

Before you buy, be sure you understand how the development allocates reservations, particularly during peak travel times. For example, a development may:

• Provide 1 week during the prime season that remains the same each year, with additional days that can be booked throughout the year • Limit the number of weeks that can be used in the winter or summer months • Rotate reservation priorities among owners. For example, each year, a different owner has the opportunity to book the week between Christmas and New Year’s.

If units are already operational, talk with other owners about their success in booking vacations during the busiest seasons.

Cost Considerations

It’s not exactly a state secret that the sum of a home’s fractional shares exceeds its total value. Why the premium? Developers say selling a single residence to multiple owners leads to higher costs for sales, management and the resort itself. To guard against overpaying for a particular fractional unit, expand your research to other fractional communities in the area, as well as the resale market.

Keep in mind that buying a share of a fractional residence requires more than just the initial outlay. Annual dues—which can easily stretch beyond $10,000—cover things like daily housekeeping, property upkeep, management fees and even property taxes.

One way to evaluate the total cost of fractional ownership is through a simple cost-per-night analysis that looks at how the annual dues break out on a nightly basis over the course of a year. To figure cost per night, divide the annual dues by the number of nights your share includes. Then compare this rate with the nightly rate at a five-star hotel in the area.

Preconstruction precaution

For buyers interested in projects that haven’t yet broken ground, there is another concern in these tough economic times—will the development ever open its doors? While buyers who get in early don’t risk losing their deposit, they do risk having those dollars tied up in a non-interest-bearing account that may never yield a real estate development.

You may want to hold off until the bulldozers arrive. It may be worth risking a slight price increase to avoid having a $50,000 deposit locked into a project that may never get farther than those colorful mockups on the sales room floor.

Resales are unproven

If you’re looking at a unit in a development that’s completed construction, research the resale market. It can take years for a development to completely sell its entire developer inventory, but even if that initial stock hasn’t sold out, there may be units for resale listed by local brokers.

Sample fractional resale listings in Aspen

• Fractionals at the Ritz-Carlton Club, Aspen Highlands have asking prices of $184,000 to $575,000. • Fractionals at the Hyatt Grand Aspen carry price tags ranging from $125,000 to $2,450,000. • Resales at the St. Regis Residence Club, a community that sold out of its developer inventory, currently run from $170,000 to $1.2 million. Its fractional units initially sold from $350,000 to $1.5 million a share.

These numbers illustrate two important points:

• There are deals to be had on fractionals in the resale market • Fractionals are not a proven investment. Fractionals do not always appreciate at the same rate as traditional real estate investments. It’s wise to look at a fractional as a lifestyle purchase, not a financial investment. You should be buying because you love the property, not because you expect to turn a profit.

Behind the Numbers

Due Diligence Questions

By Simon Turner
From his blog: How Google Maps can be used to make solar power decisions for your home

As energy prices continue to climb, the idea of utilizing solar energy is common sense. The process of getting solar panels installed, however, is quite the opposite.

RoofRay, a new Californian business, aims to give homeowners better information to enable them to make more-informed environmental decisions for their luxury home. Using the site’s modeling tools, consumers can estimate how much solar energy a home could capture and how that would affect their monthly bills.

The data provided is based upon historical weather conditions, current power usage charges, the gradient of the property, and the maximum amount of solar paneling the roof can hold. One tool uses Google Maps to let users calculate the size of their roof and build virtual panels. RoofRay then estimates the output potential of the solar panels as well as financial considerations like costs of installation, upkeep and return on investment.

Whilst not yet available in Australia, such a tool would be a welcome addition to our growing eco-conscience and our excessive reliance on fossil fuels. Furthermore, it would be useful for would-be real-estate buyers in making purchase decisions, something that the Marquette Turner team is increasingly finding is a factor in how and where buyers buy.

To find out the latest information available in Australia, a good start is the federal government’s portal www.climatechange.gov.au and Marquette Turner’s Clear the Air site


Editor’s Note:
Simon Turner is the co-Founder and Director of Marquette Turner Luxury Homes, a member of Luxury Real Estate in East Sydney, New South Wales, Australia. Founded on Australia Day 2007 by Turner and Michael Marquette, Marquette Turner is a property consultancy company covering the Australian states of New South Wales and Victoria. Born in England, Turner traveled much as a child, finally settling in Australia. He joined the Australian Defence Force Academy and graduated with a degree in Politics and History as an Intelligence Officer in the Royal Australian Air Force. This is a very fascinating topic. Jean-Yves Piton actually wrote a blog entry on “green” luxury real estate a little while ago, too. I just finished writing an article on “green” luxury properties for the winter 2009 issue of LuxuryRealEstate.com Magazine.

By Robert Lockard

I would like to share a confusation with you. What’s a confusation? It’s a mixture of confusion and conversation. I’m all for preserving the English language and avoiding the addition of new and pointless slang terms. But, at the same time, I enjoy having a little bit of fun with ideas and rules because of my playful nature. I would like to share some of my thoughts in an open, possibly random, way. So, without further ado, let’s begin our confusation.

According to a CNN article entitled “Majority not buying homes, poll shows,” an Associated Press-AOL Money & Finance poll found that 60 percent of their respondents have no plans to buy a home in the next two years. However, the same poll also found that “59 percent think now is a good time to buy.” So let’s get this straight. Sixty percent of the people in this poll said they won’t buy a home in the next two years, even though nearly the same number of people thought that right now is a good time to buy.

That seems odd to me.

I generally don’t give much credence to surveys because I understand all about the standard deviation, margin of error and, of course, the fact that one out of every 20 surveys is completely wrong. Plus, with the advent of cell phones and Do Not Call lists, surveys reach a smaller and smaller group of people and leave out many key groups. Because of all this I try not to take surveys too seriously.

Having said that, this survey does shed some light on an interesting, if confusing, situation. People realize that there are great deals to be had in the current market with prices easing in some markets, but they are either unable or unwilling to take advantage of these deals. Why? Perhaps it is because current homeowners would have to sell their homes to buy another primary residence at a great price.

This might not be especially applicable to buyers and sellers in the luxury market, but it might affect people trading up into the higher echelons of luxury properties. Unless they’ve owned their home since 2001 or earlier, many homeowners face the problem of having to sell their homes for less than they would like.

Now that is a conundrum.

I’ve had my say. Feel free to share your thoughts with me on this. What can we do to let people know when the benefits outweigh the costs of buying a new home?


Editor’s Note:
Robert Lockard is the Public Relations & Media Specialist with LuxuryRealEstate.com. I am Robert. I create all of LuxuryRealEstate.com’s newsletters, write the editorials in LuxuryRealEstate.com Magazine and much more. I appreciate your comments and insights into this topic.

By Meghan Barry

As a Seattleite and lover of the bean, it is hard to ignore the recent changes at the Starbucks Coffee Company. In January, with their stock price in a freefall, Starbucks fired the current CEO and put Howard Schultz back at the helm. Starbucks is poised to take on another challenge. In a shot across the bow, McDonald’s will start offering lattes (Note the blatant nautical references… I read Moby Dick). McDonald’s is even offering free small lattes during breakfast hours in the Seattle market this month.

Although this has nothing to do with “luxury real estate,” it has everything to do with a concept everyone in the real-estate world is familiar with – cost vs. value and what boutique services are really worth.

Starbucks is the boutique brokerage firm, McDonald’s is the commission-cutting broker. Starbucks charges $3-$4 for an espresso drink, McDonald’s charges $2-$3. Is the Starbucks experience really worth more? Are the green-apron-clad (and usually well-educated and overqualified) neighborhood baristas better than the minimum-wage-earning, polyester-donning McDonald’s staffers?

For more, visit www.unsnobbycoffee.com, and consider the fact that, no matter what, you usually get what you pay for.


Editor’s Note:
Meghan Barry is the Executive Vice President of LuxuryRealEstate.com. She works closely with CEO/Publisher John Brian Losh to organize a variety of Luxury Real Estate programs, events and services. Now here are some very interesting insights into the luxury real estate market or any market, really. Are consumers mainly interested in the best deal or do they care more about quality? Very interesting questions. What’s your answer to this conundrum?

By Jason LeMoine

We can rebuild him. We have the technology. We can make him better than he was. Better...stronger...faster.

Your home may not be as cool as Lee Majors, but it has the potential. Why settle for a modern home when you can have a home of the future? Home automation—the process of creating “smart homes”—is becoming increasingly prevalent in the real estate market. Smart homes allow homeowners to control everything from lighting to security to entertainment all with the touch of a button. These systems can be controlled from any room in the house and even remotely via a computer with an internet connection.

Want your lights on a timer while you’re out of town? No problem. Hate shoveling that driveway? Have it automatically heated. One of my friend’s parents actually wired several of their rooms to a central karaoke system for parties (be careful before implementing this one—you may regret it).

Home automation doesn’t have to cost an arm and a leg either. Many smart features can be implemented yourself with a trip to the hardware store and a little “do it yourself” spirit. For more complex features, installation is available for reasonable prices, and the return on investment is more than worth it. Automating certain aspects of your home can increase the resale value, add piece of mind while away, and help lower energy bills.

The next time you’re contemplating a home project, consider automation. We have the technology, and it won’t cost you six million dollars.


Editor’s Note:
Jason LeMoine is a Technical Account Manager with LuxuryRealEstate.com. He is responsible for many of the advanced features you find on www.LuxuryRealEstate.com, as well as the sites we’ve built for members.