Let’s be honest, we are in the middle of a historic recession and we’re all hoping it doesn’t turn into a historical depression.  What does this mean for the fractional ownership industry? 

It’s not as bad as one might think.  I tend to maintain the glass is half full mentality.  First of all it should be said that we are not talking only the U.S. here, economic problems have spread globally.  So when we talk about fractional buying habits remember that the general assumption is that this is going to apply in most markets around the world, not just in America. 

Allow me to bring out the Pierce Group Crystal Ball.  We will likely see our economic future broken down into three phases:  the “Help Us All!” phase is the first, followed by the “We Survived, What Now?” phase, and then of course the “It’s Over, Let’s Spend More and Go Back into Debt” phase.  To understand what the future might bring for fractional real estate developers let’s look at how these phases will influence the savvy buyer.  The savvy buyer is the fractional industry’s target market – 45 to 65 with successful careers and kids in or moving towards college.  (Initially Duke but now Boise State)

Phase 1 - “Help Us All!” 

We are in a period of uncertainty right now and many people are simply scared, this is completely understandable.  The savvy buyer however is playing the waiting game.  They might move some money around here and there, but overall they are financially OK and will be in relatively good shape as we move into phase 2.  The important issue to remember is that during Phase 1, nobody will be buying anything short of the new Sarah Palin action figure for Christmas.  This phase should only be temporary (knock on wood) and once the election is over and we get through the holidays things should level off.

This is a game of Chess for lenders and developers.  They need to be calculating what their next move will be when the buyers come back and preparing accordingly.  These low times are when the most successful are the most active.

Phase 2 – “We Survived What Now?”

This is what the majority of the folks (Bill O’Reilly reference) will be saying, “We survived but what do we do now?”  This is the point where the savvy buyer begins to execute on their savvy buying decisions.  In 2009 everything will be a serious bargain, even compared to the relatively low prices that we saw this year.  But let’s take a look at what those savvy second home buyers will be snatching up.  This is where those developers and lenders who decided to go fractional will win. 

The savvy buyer took a pretty serious financial hit as everyone else did and in 2009 we’ll still be in a very distressed economy.  The chances that those savvy baby-boomers are going to plunk down big money for a whole ownership second home are pretty slim - we haven’t yet reached phase three.  Condo Hotels will be a distant memory at this point, they pretty much are now.  They have fallen completely out of favor with buyers due to alleged SEC violations and the resulting lawsuits on developers.  Timeshare sales numbers will continue to fall because its target market will be much harder hit by phases one and two. 

That leaves fractional ownership, a perfect compromise.  Why not buy deeded ownership in a desirable local at a phenomenal price with reasonable annual expenses?   

Phase 3 - “It’s Over, Let’s Spend More and Go Back into Debt”

I don’t need to spend any blog space on this one.  Reference 2003-2008.

So what is the answer?  Convert!  It is important that developers and lenders position themselves correctly right now, in Phase 1.  Whole ownership condo and condo hotel properties should be considered for fractional conversion.  When savvy baby boomers start buying again, fractional will be the most practical way to go and my friends we are all going to be making practical buying decisions for the foreseeable future… sorry Starbucks, the $4 Vanilla Latte is a memory for most.  Concentrate on selling boring old coffee, stage three won’t come around for quite some time.

Eric Pierce

FORESIGHT COSTS LESS THAN HINDSIGHT^SM

For Immediate Release

PIERCE GROUP ALLIANCE OFFERS LIFELINE TO AILING

CONDO HOTEL LENDERS AND DEVELOPERS

        PICKENS, SC (October – Pierce Group, LLC and Vacation Finance today announced the formation of a strategic alliance to provide comprehensive conversion services to distressed developers and lending institutions with unsold condominium and condo hotel inventory.  With expertise in fractional ownership finance, marketing, sales and operations, the alliance helps faltering projects regain their footing.

     While the real estate market has slumped across the board, condo hotel projects have been especially hard hit by a decrease in buyer interest as dreams of big investment returns have fizzled, and an increase in developer concern as class action lawsuits form to address alleged SEC violations in the industry. 

     “Developers and bankers now are scrambling to find ways to turn what unfortunately have become white elephants into profitable projects,” said Eric Pierce, CEO of Pierce Group, a consulting firm specializing in the design, sales and marketing of private residence clubs and fractional ownership developments.  “For many, fractional ownership may be the answer.”

        Luxury second home properties are one of the few growth sectors in today’s unsettled real estate market.  According to the “2008 Annual Fractional Interest Report” by NorthCourse® Leisure Real Estate Solutions, high-end luxury fractional real estate sales surpassed $1.9 billion in 2007 in the U.S., Canada and the Caribbean, up 18 percent from 2006.

         Fractional ownership – especially private residence clubs – offers distinct advantages to developers and buyers, according to alliance member Bob Waun, CEO of Vacation Finance, specializing in second-home commercial financing for developers and innovative mortgage solutions for buyers.  According to Waun, even in a down market buyers are attracted to residence clubs because of the lower upfront and annual costs and desirable resort locations.  “But developer beware,” said Waun.  “A great opportunity can’t survive a misguided concept.”

     According to Waun, not every project is right for fractionalization, and few developers understand the intricacies well enough to make them succeed.  The alliance was formed, he said, to offer developers and lenders the expertise to assess success potential.  Using data assembled from both thriving and failed fractional and condo hotel projects throughout the U.S., the team designs the private residence club structure, the financing model and the sales and marketing approach to match the unique project needs.  

      “With capital harder to come by, credible projections and the proper capital structure are critically important,” says Kevin Stolz, principal of Kevin Stolz & Associates.  Stolz will provide detailed financial analysis support to the alliance and recommend additional capital outlets and capital structures where needed.  

     The alliance also provides banks with receivership services.  Real Estate Receiver Dennis Heck, owner and operator of U.S. Coastal Development, LLC, has joined the alliance to provide lenders with a simple and streamlined process to convert their fledgling condos into fractional ownership properties.  “Understanding current market conditions as well as future market trends is key to being a qualified real-estate receiver,” said Heck.  “Protecting the lender’s collateral and putting into place solid business and marketing plans to retire the debt also are essential. This is where a well-organized professional team is critical.”

     According to the alliance members, the goal is to offer developers the resources to implement a conversion plan as efficiently and cost effectively as possible and get sales phones ringing again.

     “Pierce Group is now able to provide the fractional industry’s most comprehensive suite of services — from feasibility analysis and financial models to recommended capital structure, consumer financing, development financing, sales and marketing” said Pierce.   “Everything a developer needs is under one collective roof.”

—For more on Pierce Group, LLC visit:  www.PierceGroupConsulting.com

—For more on Vacation Finance and Kevin Stolz visit: www.Vacation-Finance.com

—For more on U.S. Coastal Development, LLC. visit: www.RealEstateReceivership.com

                                                                                 # # #

Here is a sneak preview of a new program that bundles a suite of services to provide condominium and condo hotel developers and lenders a way out of what is now an unfortunate situation: no sales.

The suite of services being launched this week will likely be named the Fractional Conversion Program.  Condo hotel buyers have become few and far between due to a myriad of issues with owner class action suits against developers, some with regards to alleged SEC violations.  Whole ownership buyers are not raising their hands either.  With the economy still in a nose dive, there are not a lot of families standing in line for their own second home. 

Pierce Group, LLC, and Vacation Finance are teaming up to provide a suite of services tailored exactly for this situation.  We have thought of everything. We even have a Court-Appointed Receiver waiting in the wings if need-be.  We also realize that these services need to be affordable.  If conversion is too expensive it’s pointless.

Look for a program that includes a comprehensive feasibility study, financial model, recommended capital structure, commercial financing, consumer financing and sales and marketing management services.

Many are realizing that a more practical solution is to buy fractionally; more specifically buy into a Private Residence Club (PRC).  Yes, purchasing a deeded piece of real estate on valuable resort property is a good idea, but doing it fractionally is an even better idea.  Furthermore, many baby boomers and Gen Xers now realize it and sales continue to increase.  Fractional ownership’s up front and annual costs are nominal compared to the alternative option of a whole ownership million dollar purchase in High-Brow, Florida.  Moreover, owners can use their PRC interest when they choose and as much as they choose.  Throw in all of the high-end services and amenities and fractional ownership becomes a very attractive proposition.

So what to do with a condo development that is producing nothing but headaches for its worried sales people?  Convert it to fractional ownership.

Please keep an eye on this blog and SecondHomes411 for more info. 

Eric Pierce

FORESIGHT COSTS LESS THAN HINDSIGHT^SM

I read yet another ad promoting a luxury fractional ownership community and once again saw those dreaded words, “…creating special memories”.  Is it just me or haven’t we heard enough of this? 

Yes, I know the message: if I buy at Super Duper Beautiful Pines Private Residence Club then I will be able to share precious moments with my family and I’ll remember them forever.  Of course I would never have that experience if I buy somewhere else.  Please, let’s start using other methods.  Do we really think Mr. Successful family guy looking through Friday’s WSJ is going to read those words for the millionth time and yell, “Hey Honey!  If we buy at Beautiful Pines it will allow us to create really special memories!  Let’s call!” 

I don’t think so.

Actually, the first time I heard that phrase I was impressed.  “Nice spin”, I thought.  But that was sometime during the Carter administration.  Start thinking out of the box people!  Oops, there’s another one. 

To marketers’ defense, it is difficult to think of new ways to promote the experience.  Instead of “creating memories” we could try “forgetting current events”; that should work particularly well right now.  How about this:  “Replace the stress between your ears with the sand between your toes”.  I know… that’s a bit of a stretch.  Continue to use beautiful photos and search for new ways to relay the experience you provide.  Just get the reader to your web site and wow them from there. 

If anybody has new thoughts, please share.  The ink is still drying on Friday’s WSJ and I’m getting nervous.

Eric Pierce

FORESIGHT COSTS LESS THAN HINDSIGHT^SM