This is volume 1 of several upcoming posts where I will identify other expert opinions that back up my thoughts on fractional ownership and the overall opinion of the industry’s seemingly bright future.

These remarks are made by HVS author Andrew Cohen and included in Gerson Lehrman Group’s article entitled “Resort Real Estate & Recovery Speed: What Comes Back Quickest?”

“There will be resort real estate sales, Cohan says, but certain products in certain price points in certain locales will likely recover their selling strength quicker than the resort real estate market at large.”

“What will come back quicker, according to Cohan?

• Resort real estate markets in drive-to resort markets. (A point made after 9/11 as well, and perhaps true for a while, before life returned to excess normality.) The idea here is that people will seek resorts that don’t require expensive flights to reach and that can be reached more often, which connects to….
• Use: Resort real estate buyers will be more focused on value, especially value through use. Buyers will either want to use the resort property as often as possible or will only want to pay for what they believe will be their typical level of use by buying fractional real estate or by joining private residence clubs
• Preservation of service and amenities: Cohan makes an interesting point when he says that the household that was worth $10MM in the glory days became accustomed to the highest level of service and the highest quality amenities. Now that they’re worth “only” $5MM or $6MM they may not be able to afford a $4MM vacation home any more, but they want the service and amenities they used to know, if someone can deliver them a $2MM home that can somehow be packaged with that higher-level service and amenity package”

Please see the entire article here:   http://www.glgroup.com/News/Resort-Real-Estate–Recovery-Speed–What-Comes-Back-Quickest–43801.html

But first, allow me to expand a bit on Mr. Cohen’s points regarding drive-to resort markets and the demand for flexible second home usage.

If you are a developer of a residential resort community in a drive-to destination make sure you offer a usage plan that provides for the flexible usage that Mr. Cohen discusses.  Nobody wants to purchase a second home within two, three, four or even five hours of their primary residence and be told that they can only use it according to a rotating schedule or pre-assigned weeks.

Rotating schedules might have their place in a destination like Aruba, but not where the last minute getaway is so valuable.  This is especially true if the resort is upscale and the price is in excess of $100,000 for each fractional interest.  In this business, flexibility is synonymous with luxury.

In traditional fractional ownership and Private Residence Club sales, success depends on the creation and delivery of a far more complex product; one that goes well beyond marble countertops and stainless steel appliances.  A key component to the fractional offering is accessibility among other things.  Thus, the reservation system is critical to the success of the project as prospective buyers will not take the leap - especially in this economy - if they do not see an opportunity to use their second home in a flexible manner.

Warning: please don’t take this too far and create a “flexible” or “fair” reservation system that only an MIT grad can understand; you will certainly be creating a sales landmine.  Unfortunately this is way too common; in fact I just saw it last week in Mexico.  I was impressed by the project but for the life of me could not understand what appeared to be the most complex formula since the credit default swap debacle.  Folks, if yours truly can’t understand the reservation system… that’s bad.  I spend most of my day on this stuff, what is John Q. Public going to think?

For more on Pierce Group’s services and properly creating your own reservation system please click here:  http://www.piercegroupllc.com/core-services.html

Eric Pierce

Foresight Costs Less Than Hindsight^SM