Arguably the most valuable service provided by any reputable real estate consultant is the ability to prevent costly mistakes for their clients.  Not only does this apply to the fractional consulting industry, it’s magnified.  Our industry is still relatively young compared to its predecessor, the timeshare, and the majority of real estate developers have yet to embark on the development, sales and marketing of any type of fractional ownership real estate.

If I had a nickel for the number of times I’ve heard this: “We’re going to sell this project out through the local real estate community”, I could retire and buy fractional interests around the world!  This brings me to the list of most common mistakes made by new fractional real estate directors.

Mistake #10:  “We’re going to go with Super Duper Advertising Company because they have sold more than $10 Billion in luxury real estate.”

Not so fast.  It might sound logical at first, but selling out a project in 2004 was about as difficult as selling a cheeseburger at McDonalds.  Look for companies that have had some traction this year - yes they do exist.  The ability to defy the odds and sell real estate today indicates that the advertising company has the ability to adapt to different markets and reach out to buyers no matter how difficult.  This quality is very valuable so pursue these companies even if they have never heard of fractional ownership.  The fractional expertise is what you have Pierce Group for!

Mistake #9:  “It didn’t sell wholly so it will sell fractionally.”

Not Really.  Is there a chance that your stalled condo project could sell fractionally?  Of course.  Is it a lock?  Absolutely not.  Often times a traditional real estate development won’t sell because of traditional issues, or traditional errors.  If the project is a mile and a half from the beach and all you have is a tennis court then it probably won’t sell fractionally.  Before you convert it, seek out an expert opinion.

Mistake #8:  “We’ve set aside the traditional 5% for sales and marketing.”

Wrong.  A fractional real estate sale is a different animal.  No longer are we selling marble countertops and hand-crafted cabinetry.  This is a lifestyle message that requires more explanation around the effortless experience and practicality of ownership.  When was the last time you saw the explanation of a reservation system on the web site of a typical whole ownership gated community?  Your costs will be significantly higher for more advanced brochures and web content.  Additionally, more outreach is required.  The MLS (in most cases) won’t even bring 5% of your sales.  The real estate community won’t be your answer either - reference Mistake #2 - so a full on-site sales team is needed and there are plenty of extra costs associated with that.  Don’t worry developers; the difference will be made up in higher sales revenues.  We’ll leave that for a different article.

Mistake #7:  “We’ve decided to leave out the exchange program; it sounds too much like a timeshare.”

Incorrect.  The key difference between timeshare exchange and fractional exchange is that timeshare buyers more often make their purchase decision based on the exchange component.  The reverse is true for fractional buyers - they purchase because they love the location - the exchange is simply a bonus.  Your sales team understands this and never leads a conversation with an explanation of the exchange benefit.  The exchange affiliation is a tool that can add credibility to your project and help get your prospects over the goal line.

Mistake #6:  ”One sales team will be responsible for selling all of our residential products.”

Don’t do it.  One team should sell your fractional product; another should sell your whole ownership product and so on.  Each team should be masters of their own product and be able to handle product specific objections.  A little competition is healthy.  Of course, gun slinging and infighting among sales teams doesn’t do any good so set the ground rules from the start, put together a good internal referral program and it shouldn’t be an issue.

Mistake #5:  ”We are hiring local real estate agents to run the sales office.”

Not so fast.  While some local real estate agents might be well qualified, many are not - I’ve seen both.  The fractional sales position requires skills like… listening.  This is not an easy skill to learn and many sales people will simply never be able to grasp this concept.  Vomiting features and benefits all over prospective fractional buyers is as effective as a two for one special at a super-yacht dealer.  Reach out of the box when hiring your sales team and don’t concern yourself so much with whether or not the candidate has a real estate license.

Mistake #4:  ”We have rock solid legal documents that protect us no matter what!”

Go easy here.  Typically, legal documents are written by attorneys hired by you, the developer.  So it is your attorney’s job to protect you, their client.  This is completely understandable but at the same time it is to your advantage to make sure the documents are sales friendly - i.e. free of sales land mines.  In the case of fractional sales, the documents are lengthy and include things like Public Offering Statements and references to timeshare.  Our industry still falls under timeshare regulation; actually a good thing for the buyer but can look scary nonetheless.  Buyers will have their own attorney’s, accountants and/or financial advisors look through them.  So get those sales land mines out of there by having your trusty fractional consultant review them.

Mistake #3:  ”We already know our ratio is 8:1 and what our price will be, we don’t need a feasibility study.”

Never skip the feasibility.  Why did you choose 8:1 and not 6:1 or 10:1?  What criteria did you use in setting your price?  There are reasons why we come up with the appropriate owner to residence ratio as well as the reservation system.  These reasons come out of research performed during valuable feasibility studies.  Remember, a project cannot be sold by even the most skilled sales people if the product is structured incorrectly or priced incorrectly.  Spend a few bucks up front to ensure that you are starting off on the right foot; it will save you oodles in the long run.  We like to say it this way: “Foresight Costs Less Than Hindsight^SM“

Mistake #2:  “We’re going to sell this project out through the local real estate community.”

No you’re not.  Don’t confuse this with Mistake #5; here we are referring to spending very little on traditional marketing avenues and re-directing those resources towards educating the local real estate community to sell for us.  Sounds decent in theory but never works.  To go this route assumes that the real estate community is willing to spend their valuable time and energy learning a new product with a sale price equivalent to a “fraction” of a traditional whole ownership sale.  Commissions are lower so an agent’s interest and excitement is usually lower as well.  This is not to say that there are not local agents that will understand the product and embrace the opportunity to offer a practical alternative to their trusted client list.  It is simply not a strategy that can be used to sell an entire project.

Mistake #1:  “We’ve read this article, bought a couple fractional books and have now gathered all of the information we need.  We no longer need a professional consultant.”

Not so fast.  First of all, we have just scraped the surface in this article.  You will be faced with hundreds of decisions that can prove costly if not handled correctly.  The majority of what you will face throughout the project development, sales and marketing lifecycles cannot be found on the internet.  Second, selling this product requires extensive training, followed by more training and then additional reinforcement training.  Explaining the fractional concept to buyers is an art and must be done at the right pace as to not confuse them and send them away without completely understanding what you have to offer.  See To Vomit or Not to Vomit.  Third,   every project is different and you should not be expected to understand the intricacies of how each reservation system is designed and why.  Stick with what you do best, find attractive properties and put together the right team that can work interdependently to create something special.

In summary, eliminate mistakes and save money by reducing costly expenses associated with errors that could have been prevented at the start.  Fractional ownership is not only a practical decision for your buyers but for you as well.  Learn it, love it, embrace it; do it right the first time and watch your profits grow!

More information here:  Pierce Group Feasibility Study and Pierce Group Project Development Services

Finally an upscale fractional development has arrived in Chicago!  James Place Private Residence Club has launched sales of 1/12th interests in very upscale two bedroom and two bath residences.  Now future owners have the opportunity to make a more responsible second home purchase decision and still enjoy what they love the most, Chicago.

Owners will enjoy all of the services and amenities one would expect from the finest Chicago hotels but own the added bonus of virtually unlimited access.   We installed the Personal Choice Reservation System at James Place.  This flexible system allows for abundant usage of all of the Club’s 40 residences and eliminates the issues of reduced availability born from restrictive systems common in other fractional developments.  All of the residences are available to all owners and are identical in size and decor, designed to provide owners with a comfortable and quiet living space - exactly what is needed in a bustling city!

Charter price is now set at $140,000.  Interested parties are encouraged to inquire soon, the club is priced to sell now.

In addition to an inflated commission structure, Real Estate agents around the world are encouraged to sign up for a landmark referral program at EarnAMill.com

For more information contact Rick Mendoza, Sales Director at Rick@BellaGRP.com

The dissemination of information at the early stages of the sales process has long been debated and there are believers in both sides - holding back information and throwing it all out there.  Let it be heard (read) here, times have changed and the process in which we provide information to interested prospects is a crucial element of the sales process.  Fractional sellers need to provide a wealth of information so buyers can educate themselves.

The typical perception is that the information might be too complex and too confusing, or the reader might directly relate the project to timeshare and thus lose interest before completely understanding it.  So marketers will throw a little bit of information out there with the hope that enough interest is created resulting in more inquiries.  Therefore, the sales process is often extended into months rather than weeks.  We all know that this industry is nothing like timeshare and these fears must be conquered.  The prospect must be provided the information needed to make an educated and informed decision in a reasonable amount of time, a 90 day forecast to contract is nonsense.

The debate is this: if we present too much information too fast then the vomit effect comes into play and the sale is lost.  Most sales people who have been subjected to any type of basic sales training course have likely been introduced to something similar to what I like to call the “Vomit Crevice”.  It’s not pretty, but “Vomit Crack” was even worse.

The premise is that sales people stand on the edge of an empty crevice which lies between them and their prospective buyer.  This crevice represents the buyer’s lack of understanding of the product or service they are considering.  The only way to facilitate a connection between the buyer and seller is to fill up that void with valuable and relevant information that is important to the buyer.  Each valuable and relevant question answered represents a large boulder that is tossed into the crevice.  The result is a crevice that has been filled with a solid foundation of boulders (information) thus giving the prospect the means to walk across and shake hands - a closed sale.

However, many young sales people are hell bent on spewing as much information as humanly possible regardless of whether or not the buyer actually cares about any of it.  This is a classic rookie move.  The default for freshly-trained sales people is to vomit every bit of detail about their product or service that they have just learned in their product training classes.  (This is where it gets really gross.)  A crevice full of vomit is nothing but a disgusting pool that the prospect will sink into when attempting to walk across and therefore results in a lost sale for the sales person.  Needless to say, no buyer is going to shake the hand of someone who just led them into a pool of vomit.

How does all of this apply to fractional ownership sales?  Easy; fractional sales people have a more challenging task than a typical real estate agent.  Fractional folks don’t play in a world of just granite countertops, cherry wood floors and 5,000 square feet.  That stuff is easy.  In the fractional world the prospective buyer must completely understand everything from why it is a logical real estate purchase, to the unmatched experience provided in residence, to the fair and flexible reservation system and why it’s not a timeshare.  You can see why it becomes very easy for a fractional sales person to become completely immersed in all of this information and commence vomiting all over the place.  Information starts flowing about the Residence Club’s logarithmic tie-break system when the prospect simply wanted to know if they could go skiing next year.

So, you’re thinking the clear lesson here is to make sure that your sales people do not spew all of their information up front and take it one step at a time, easing the prospect into those nitty-gritty details.  Not so fast.  There is another factor at play here; closing the deal while the iron is hot.  This is a major rebuttal to the vomit crevice.  After all, in similar fashion to the “first 48″ that cops have to catch their criminal, sales people have a limited window to reel in their interested buyer as interest can fade almost immediately.

This is basically a catch 22.  It seems as though the answer is to proceed with information overload to try and bring in the sale while the prospect is hot.  Actually, this is correct.  The way to do it is with coordinated messaging between your sales team and your sales materials.  When I refer to sales materials I mean marketing brochures, FAQ’s and the website.  A second document entitled Advanced FAQ’s should also be considered for those hot leads in the final stages of the sales process.

Too many times I look through web sites of Private Residence Clubs that have literally no information except the beautiful mountain surroundings and granite countertops.  This is the “tease strategy” and the idea is to get the buyer interested enough to make the phone call so the sales person can take over.  The result…  vomit.  The poor prospect has now been completely overwhelmed with (deep breath) planned vacations, space available vacations, the flexible tie-breaker system, pricing, supply and demand, HOA dues, consumer financing, the daily tidy vs. the mid-week clean, the reservation deposit, no pets but your brother can use it but only on planned vacations, and I almost forgot - the upcoming price increase.

Next will surely come those famous words: “I’m not interested in a timeshare”.

Don’t go this route.  Give the prospect more information before they call.  An informed prospect is a valuable prospect.  Put the price on your website!  Yes, I’ll say it again.  Put the price on your website! If the price is surrounded by valuable information regarding how the club works along with the unmatched experience that is provided then the price will look great and the phone will ring.  What you don’t want to do is vomit all over your website, there is a happy-medium here.  Simply put, there is stuff that can go on the site and there is stuff that can’t.  For example, explaining how the “rotating priority tie-breaker to be fair to everybody” policy works should NEVER be explained in any detail on the web site.

The sales team should work in concert with the marketing team on the dissemination of information to the buyer.  The sales person should hang up with an excited buyer, not confused.  They should be anxious to read more detail on the website or in the e-brochure that has just been sent to their inbox.

In summary, we must vomit to a point; a point that creates excitement and moves the sales process forward in an efficient manner.  However, the spewing should be done by the marketing materials and the web site in addition to valuable information from the sales team.  As the sales process moves along the questions and answers will become more advanced and cover more detail.  It’s much easier to explain the “rotating priority tie-breaker to be fair to everybody” policy when the buyer is already excited for their first trip.

Now start spewing.

FORESIGHT COSTS LESS THAN HINDSIGHT^SM

I have recently announced a new Fractional Project Assessment service that I believe can be a huge benefit to developers.  It is priced right for the market and for developers who are not thrilled about spending huge amounts of money.  It’s a basic review of their project from all sides with recommendations.  This can be a huge mistake-prevention tool for developers who can’t afford to spend more money on full consulting services.  It’s only a $2,500 one time fee and goes hand in hand with what we preach “Foresight Costs Less Than Hindsight”SM  Read more about the Assessment at PierceGroupLLC.com.

It is great to see Fisherman’s Cove Key Largo moving forward with NFL great and Fox Sports analyst Jimmy Johnson. I had the pleasure of working with the developers on this project and it is a fantastic piece of property, with supurb accommodations.  But now it appears that it will get even better. Here is the article from FractionalReport.com:

Jimmy Johnson’s Fisherman’s Cove is an exclusive Private Residence Club located on Key Largo, Florida.

The club has recently partnered with the former football coach to add his name above the door, and his inputs and presence at the club and its amenities.

The Big Chill, a waterfront dining and entertainment facility, (now aptly called Jimmy Johnson’s Big Chill at Fisherman’s Cove) is sporting an inviting new theme to entice both residents and tourists alike: Come Chill Out with JJ. “The convenience of having a place to play just a few miles or so from where I sleep was a perfect find,” says the retired championship coach. “And not only that, they’re allowing me to make it even more perfect.”

Read the rest of the article here:

http://www.fractionalreport.com/private-residence-clubs/jimmy-johnson-florida-club-0509.html

Notice the new link on the right.  Just beta mode at this point but let’s see what happens!

1.  Fractional is Practical

Practical is becoming a popular word in this market.  More vacation home buyers will be looking for practical uses of their discretionary income coming out of the recessed economy.  Be prepared to offer them something.  Convert a portion of your inventory to a fractional club and you should benefit from more sales in 2009 and 2010. 

2.  Fractional is Profitable

Fractional sales revenues can be far greater due to the whole ownership multiple which (realistically in today’s market) is a bump of somewhere between 1.5 and 1.8 - in 2005 it was 1.7 to 2.0.  Sales and Marketing costs will be a bit higher than you would expect with traditional whole ownership but not even close to 50 or 80 percent higher - less than 20% of total revenue in fact.

3.  Fractional is “Green”

Some believe that global warming is our fault and some believe it’s just part of the Earth’s normal pattern.  What everyone believes however is that it doesn’t hurt to continue to move toward more efficient uses of energy while reducing the amount of waste we all use.  This is what fractional offers and you will continue to hear about it in the years to come as demand for Green building increases.  If 100 boomers decide they all want to buy their own second home then we are using materials to build 100 homes and those 100 homes will use more energy to regulate the temperature while the homes sits around unused.  If 100 boomers buy into a Private Residence Club  however (a form of fractional ownership) then we are looking at possibly 12 to 14 homes.  It doesn’t take a genius to figure out the energy savings that occurs, not to mention the land that could be saved for “Greener” uses. 

4.  Fractional is Convertible

If sales are slow or the developer wants to switch a portion of the fractional development back to whole ownership then it’s not a problem.  The units are closed in a pre-determined order that will allow for the developer to change directions if need be with little or no negative affect on previous buyers.  Furthermore, club documents will typically provide the developer the option to change the owner to residence ratio if they choose to.  The opposite effect is in play for whole ownership projects that want to convert to fractional.  The condo docs typically have to be changed to transient use which represents a “material change” and gives owners the ability to bail out of their whole ownership contracts.  In Florida for example, there must be a 100% vote of the owners and mortgagees to allow for conversion from whole ownership to a transient use plan.  Long story short:  start fractionally with all or a portion of your project and you have the flexibility to convert to whole ownership down the road if you choose. 

5.  Fractional is Mainstream

Fairmont, Capella, Ritz Carlton, St. Regis and Viceroy to name a few… they all sell fractionally now.  Enough said.

For more information on Eric Pierce and Pierce Group, LLC please visit www.PierceGroupConsulting.com

Foresight Costs Less Than Hindsight SM

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