Annie Bone owns a three-story house in San Francisco—and two-eighths of a one-bedroom apartment on the Upper West Side of Manhattan.
A frequent traveler to New York City, Bone, 78, took advantage of something called fractional ownership about a decade ago. She and a friend bought shares of an apartment in a luxury building called the Phillips Club. They now have a deeded, partial ownership interest in a 600-square-foot unit with a fully equipped kitchen. (Shares of one-eighth of a unit in the building go for $180,000 to $318,000, with annual fees of $6,500 to $13,000.)
Since Bone and her friend combined their shares, they’re entitled to use the apartment at least four weeks a year, which they can divvy up however they like through the club’s flexible scheduling service. They don’t have to haul much back and forth, thanks to the unit’s private storage space. And the best part is that Bone can bring her Norwich terrier to the apartment. He’s become so familiar with the building and staff that “he thinks he owns the place,” she says.
“The location is fabulous, and the scheduling is flexible. You can change your times from year to year,” Bone says. “And it’s easy to sell your share if you want to.”
If this seems like a new take on an old idea, it’s because it is.
Fractionals vs. timeshares
Timeshares first cropped up in the vacation industry in the 1970s, and grew to the point where international chains now offer all-expenses-paid stays to lure prospective buyers. But interest in this type of ownership tanked along with the housing bust, after which people found it hard enough to hold onto one home, much less a vacation pied-à-terre.
But as the housing market has improved, so has the outlook for shared ownership, with fractional ownership becoming a popular option, especially with affluent buyers looking at highly desirable locations in big cities or well-known beach or ski resorts.
Although fractionals are similar to timeshares, in a timeshare the owner has purchased a period of time in which to use the property; a fractional owner actually owns a slice of the property itself. Expenses like property taxes and maintenance are shared across the owners, as is any rise or fall in the property value.
These shared properties are often part of private-residence clubs—hybrids between apartment living and hotels, with concierge services, fine dining, health spas, and an array of other amenities. Owners typically have a say in how the property is maintained, while a management company oversees upkeep. Plus, some clubs also have exchange programs that allow owners to swap their time for use at a different property where they don’t have ownership rights.
Sales at private-residence clubs and other fractional ownership developments fell off a cliff in 2008, due to the housing market collapse and recession. But buyer interest in the concept is again rising, primarily in the highest-priced vacation destinations.
Annual sales volume of fractional projects in North America has averaged around $515 million since 2010, a quarter of what it was between 2004 and 2008, according to Richard Ragatz, president of Ragatz Associates, which tracks the industry. He estimates that fractional sales rose a modest 10% last year over 2017, but says business has been more brisk in a handful of elite locations.
“It’s a specialized market,” he says. Projects that sell best are in ultrapricey, resort areas where there isn’t much housing available.
Maintenance-free, second homes in luxury locations
Much of the appeal of fractionals is that folks can still own property without having to worry about maintaining it.
Sean Daly, 63, and his wife, Christie Daly, 61, owned a vacation condo in Steamboat Springs, CO, before they retired a few years ago from their jobs as a partner in an accounting firm and an attorney, respectively. But they found they were spending too much time and energy fixing things and cleaning in their second home. So they sold the condo and bought three fractional interests in private-residence clubs in Vail, CO; the Hawaiian island of Kauai; and a Tuscan estate in Italy. The fractionals are all in private-residence clubs operated by Timbers Resorts.
They are guaranteed at least four weeks a year at The Sebastian in Vail Village and three weeks in the Hawaiian and Italian homes. Their annual dues for the three properties, which cover taxes, utilities, services, and insurance, are about $45,000. They also built a house in Steamboat Springs for when they’re not traveling.
“It’s a lot less hassle,” says Sean.
He likes the convenience of being able to leave his bicycle, cases of wine, and other belongings at the residence in Italy. But he doesn’t see fractional ownership as a money-making investment—and does not recommend anyone go into it for that reason. For them, he says, it makes sense as a more affordable alternative to repeatedly renting in Vail or Tuscany.
Fractionals also alleviate other big objections to buying resort real estate: high prices and being anchored to just one location, says Steve Dering. He helped pioneer the fractional residence club concept in the 1990s at Deer Valley, a ski resort in Park City, UT.
“With a fractional ownership, the price is more commensurate with your actual use, usually a few weeks a year,” he says.
Part-time luxury living for millionaires—and the other 99%
This isn’t to say fractionals are cheap. At Dancing Bear, Timbers’ private-residence club in downtown Aspen, CO, fractionals are commanding close to $3,700 per square foot. That translates into $925,000 for a one-eighth share in a 2,000-square-foot unit.
That’s because the world-renowned ski town is just that expensive. (To put that into perspective, the median home price in Aspen is $1,690,000, while the median rental goes for $12,250 a month, according to realtor.com® data.)
Many of these buyers can afford the sky-high price tags. The average fractional buyer in Timbers properties has a net worth of $7.5 million, according to Greg Spencer, the company’s chief executive. And they own at least two other vacation properties outright.
But not every fractional development is aimed at millionaires.
The castlelike RiverWalk Resort at Loon Mountain ski area, in Lincoln, NH, is also enjoying brisk sales at more down-to-earth prices. One-sixth shares start at around $60,000 for a studio and top out in the $200,000s for a three-bedroom unit. (The resort also offers whole ownership.) The first phase has a full-service restaurant, spa, fitness facility, production winery with tasting room, and two heated outdoor swimming pools, one of which is used as a skating rink in the winter.
Phase 2, due in 2021, is expected to include a conference center, sports bar, and whiskey distillery.
Dennis Ducharme, the developer, attributes the project’s success to its prime location: at the base of the ski mountain in lively downtown Lincoln, about two and a half hours from Boston. Additionally, the White Mountains National Forest region is such a tourist draw that “we’re busy year-round,” he says.
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Source: Housing Trends Feed