I have read several reports and articles attempting to differentiate between fractional and Private Residence Club (PRC). The common theme tends to be this: Private Residence Clubs are “upscale” versions of fractional ownership. In a word – true. But there are components that make up “luxury” that must be addressed when discussing Private Residence Clubs. For example: does “luxury” simply mean cost per foot or should it mean the personal choice of traveling when one chooses?

First, understand that fractional is PRC. In other words, PRC is to fractional as Lexus is to Toyota. However, Lexus isn’t more expensive simply because of wood trim and a big engine; just as PRC’s aren’t more expensive because of high-end appliances and marble countertops. Yes, these qualities add to the experience but they are not the whole story. The overall driving experience is the difference and Lexus and PRC owners pay more for it. (Let’s not forget timeshare – I’ll call that the Ford Focus. Smaller, more economical, lots of people own them and they get the job done. The only problem is dealing with the sales guy.)

Next, the advantages of a true PRC go beyond a simple price per foot calculation. Lately I have seen attempts to simplify the terms and designate a PRC as a fractional that sells at more than $1,000 per foot. Wrong. This would mean that if two absolutely identical fractional opportunities were to exist in both Nantucket and South Carolina, the Nantucket property would be labeled a glamorous Private Residence Club and in South Carolina you’re likely to be an owner of a boring old fractional.

Here are the true differences between the two:

Here’s the problem: many fractional clubs choose to call themselves PRC’s because it sounds more “upscale” or “luxury”. After all, wouldn’t you rather buy into a “luxury Private Residence Club” than a “boring fractional”? This is the main cause for confusion among buyers. (Throw in the Destination Club industry and one doesn’t know what they are driving and if they bought or leased it!) At the same time we occasionally find a PRC that allows owners to rent.

So a notice to developers and lenders: before you decide to take your condominium or condo hotel project fractional and divide it into 12ths get some professional advice. If it is not structured correctly for the market, sales will struggle.

Eric Pierce

FORESIGHT COSTS LESS THAN HINDSIGHT SM