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From the
June 2010 issue of:

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Ragatz Conference: Fractions Add up to More than Whole or Timeshare
by Alan N. Schlaifer
Law Offices of Alan N. Schlaifer, P.C.
For the 10th consecutive year, Ragatz Associates, Eugene, Oregon, led by globally renowned guru Dr. Richard Ragatz, CRP, recently held its fractional conference in San Francisco. Attended by a broad spectrum of industry leaders and potential entrants, the event, rated by many executives as the most important in the fractional industry, had a mostly upbeat mood balanced by rock-solid and creative pragmatism.

Atop Nob Hill, one of the highest and most prestigious areas in the city, at the elegant Fairmont, the location was symbolic of where the fractional industry has been and where it may again be headed after a sharp revenue drop in the past two years from its all-time peak in 2007.

A view of future trends comes from the Executive Summary of the 2010 Ragatz Associates annual report, The Shared-Ownership Resort Real Estate Industry in North America (herein “2010 Ragatz Report”): “Based on over 35 years of experience in the resort real estate industry, we fully expect the shared-ownership industry to once again be on a significant growth track as the national economy further stabilizes.”

The summary concluded that this facet of shared ownership “will rebound more rapidly and more strongly than whole-ownership” because of five key factors that provide a strong foundation for the shared product:
  • Personal use, not speculation
  • Purchasing only the amount of time that fits available vacation time and discretionary income
  • Reduced household spending and capabilities
  • Relatively hassle-free – just “show up and enjoy”
  • Flexibility and variety from exchanges

Dr. Ragatz covered many other positive factors in his opening introduction. Shared ownership is better in many ways for the local host community than timeshares, hotels and whole ownership. Shared generates higher occupancy, usually year-round, and more stable employment, owner purchases and taxes.

Many developers find over advantages timeshares, because of less complexity and disruption, better image and fewer sales needed. Offsets may be a lack of receivables income and smaller target audience. Compared to whole-ownership, shared has a broader market, higher markup and occupancy. Disadvantages include higher product and operating costs, and a need for more sales.

Keys to Success
Success in shared ownership starts with the product. You need positive name recognition; a strong lodging brand is a big plus. It has more focus on quality - unit, services and amenities - than on size per se.

Extras help; this is really a lifestyle product, not “simply brick-and-mortar.” Amenities and services need to fit this model, and should be provided “where there’s real demand;” otherwise, too much cost without benefits. Also offer preferred access to recreational activities such as skiing, golf, and a spa, either on-site or nearby.

“Vital delivery” means you do not proceed on a Field of Dreams scenario. This is not a “build it and they will come” product. Marketing and sales need to be aptly positioned between the whole-ownership and timeshare products. This has a much longer sales cycle from initial contact to closing than with timeshare, so listen to and take care of people: more hand-holding, sensitivity, patience and follow-up.

Variable State of the Industry
In his annual “State of the Industry” report, Dr. Ragatz reviewed the industry’s revenue path during the past decade. Sales in shared ownership projects (other than timeshare) rose modestly from $329 million in 2000 to $350 million (2001), then to $373 million (2002). Sales accelerated to $513 million (2003), doubled to $1.1 billion (2004), and rose another one-third to $1.54 billion in 2004.

The rapid run-up continued with $1.97 billion in 2005 and $2.12 billion (2006), before peaking in 2007 at $2.3 billion. Along with a decline in most of the rest of the economy, totals dropped roughly one-third to $1.52 billion in 2008, and about 44% to $860 million last year.

All three segments of the high-end shared ownership business shared in the decline from 2008 to 2009. Fractional interests fell 43%, and destination clubs and private residence clubs (PRCs) were off 44% each. This was better than whole-ownership vacations home sales, which plummeted 60%, but somewhat more than timeshare (-32%) and total home starts (-30%). Resort hotel revenues went down less than half as much, about 17%.

To clarify the industry’s terms, Ragatz defined the three segments as follows. Fractionals and PRCs always involve shared ownership with annual shares as small as 1/15 (3 weeks) to as much as one-fourth (3 months). Surveys assume fractional interest resorts (FIs) sell for under $1,000 per square foot. PRC prices are above that level with higher quality product, services, amenities and locations.

In contrast, destination clubs (DCs) usually sell 30-year memberships, usually on a non-equity basis. These offer access to a network of vacation homes in multiple locations. Also, when members leave the club, they are supposed to be able to obtain a refund. This has not, however, always been the case when DCs have run into significant financial trouble.

Snapshot of Industry Metrics (see table in book:
Within the broadly defined North American market (U.S., Canada, Mexico, and Caribbean), Dick Ragatz noted 30% of all active projects are in Colorado, California and Florida. The 132 active projects represent about 40% of the 300 that have been developed.

Most speakers and other attendees seemed to agree that revenues would either be stable or rise in 2010 and the years ahead. Factors include less new product coming on the market, while the economy stabilizes and perhaps moves ahead after the Great Recession. Dick Ragatz candidly admitted, however, that, while optimistic, he doesn’t want to be “polyannish” about the shared-ownership concept.

Viewed in a broader perspective than just the past few years, last year’s sales were still more than double those during the first three years of this decade. With 60,000 owners or members of fractionals, there is still a huge market potential among affluent consumers who can afford and benefit from the shared product.

Conference Focus
Emotions were mixed among those who had been in fractionals when the market peaked. Yet, positive tones and takeaways that are working to increase marketing effectiveness and sales were major themes. Session topics from industry basics and finance to marketing focused on what what you need to do to survive if you’re in the business, and steps to consider before entering.

As Yogi Berra said in his inimitable way, “You can learn a lot by watching.” At this conference, the 288 attendees did learn by watching – and listening, questioning and interacting with others during sessions, at meals and other breaks. The “crown jewel” for networking was the lovely opening night reception in the Crown Room atop the Fairmont Tower.

The program’s 16 sessions featured over 60 knowledgeable, experienced speakers. These are some of the major topics and speakers. At Fractionals 101, Dick Ragatz emphasized that this introductory session has been popular every year. Even experienced developers and marketers attend. It’s a good way to get a quick overview and update on new industry developments. His overview preceded the case study with input on varied facets from top speakers:
  • Project Manager: Michael Burns, Private Residence Resorts
  • Feasibility Analysis & Consumer Research: Dick Ragatz. He cited reasons for starting with a feasibility analysis to set the proper foundation. Lenders request it because it provides more useful, realistic insight than an appraisal.
  • Legal Issues: Jim Scavo, Weinstock & Scavo, Atlanta, covered major shared ownership club concepts and variants
  • Financing: Bill Ward, Jr., Ward Financial, Pittsburgh, PA, on one of the hot topics, given the many challenges developers have been facing. Some fractionals are able to provide financing, because of manageable loan size, end user (not speculator) demand, and more sustaining value from higher caliber, more distinctive locations. Lender education is critical, plus a solid feasibility analysis, proper offering, effective management, pertinent developer experience, strong marketing and sales, good legal foundation, and appealing architectural design.
  • Design: speaking of design, Lisa Marechal, Neo Design Studio, Portland, OR, discussed the “Marechal” arts: five phases of the design process from planning through architectural administration
  • Connecting with the Consumer: Ann Barker, RRP, Barker & Associates, Indianapolis, IN, says that a long-term, comprehensive, robust customer care process is vital if you want “long term success.” To connect with customers, you need to solicit feedback during or after every stay, record and monitor feedback, and analyze customer experience from an outside perspective. You have to meet - or better, exceed - expectations every time, because this level consumer has “little tolerance for errors” and “is not very forgiving.”
  • Marketing: Sean Zimmerman, SIA Partners, Scottsdale, AZ (, a firm whose many projects have included Calistoga Ranch (see below), covered basics of marketing to be successful. Some key lessons: “Preparation prevails:” Properly identify your buyers – who they are, what they’re looking for, their interests, and where they’re coming from. Then narrow your target markets. Know your competition. Understand your regional market.
    • “Build your brand platform.” Define your “community’s core differentiators,” align with your target audience and create “materials that are a direct reflection of your community’s uniqueness and quality.”
    • “Bridge the gap:” get collaboration between your sales and marketing teams, with experienced industry professionals, and local marketing experts.
    • Reach prospects through tactics such as owner referrals, local and international events, targeted Web efforts, and “discovery visits”

  • Property Management: Tom LaTour, LaTour Signature Group, San Francisco (, discussed some of the many benefits of using an experienced third-party manager, plus differences between fractional management versus timeshare or whole-ownership.
  • Exchange: Bob McGrath, The Registry Collection, the largest exchange organization in these segments of shared ownership, and part of RCI, the largest timeshare exchange.
  • Implementation Options: Carl Berry, CEO, Star Resort Group ( compared pluses and minuses of four options; the second and third are the most common: (1) Go it alone: rarely successful; (2) Bring on “your man” (or woman); most control, fewest fallback choices; (3) Get a sales and marketing company: “the way most developers choose to go;” (4) Partner up: select a brand and let them take over your project, starting with what may be expensive licensing fees and require a good mix of chemistry and luck.

Other sessions also featured excellent speakers and invigorating discussions on timely topics. One was “The ‘New’ Affluent Consumers: Is it Time for a Paradigm Shift?”, where three speakers covered this timely topic. Ten speakers, including Ed McMullen, Jr., of Legendary, Inc.; George David, Realty Financial Resources; Amy Anderson, Timbers Resorts; and Mike Clowdus, Esq., Ballard Spahr; participated in two sessions of the informative Developers’ Report.

Dave Waller, Esq., Baker Hostetler moderated “Success Stories from Other Countries and Other Shared-Ownership Products”. It included these speakers who covered a wide range of international locations: Michael Aumock, ViaMari (yachts); Bryan Lunt, Absolute World (Thailand); Peter Kempf, PKI (Peter Kempf International), whose Palazzo Tornabuoni in Florence, Italy, has attracted buyers from the U.S. and 14 other nations.

Jon Zwickel, Bellstar Hotels & Resorts (, Calgary, Alberta (13 destination resorts with 750 suites and 1,540 owners) discussed how Bellstar has minimized rescissions: 20% non-refundable deposits; treating buyers like owners (e.g., free golf); allowing some buyers to trade down; constant positive communications to affirm that buying was the correct decision; over-delivering on promises.

Four interactive breakout sessions followed. “Fractionalizing Individual Homes,” featured an engaged audience and lively interchange among panelists and moderator, Scott Ritter of Dahlgren Duck. One was David Disick, David M. Disick & Associates, Heber City, UT, who in 1994 began what is now Fairmont Franz Klammer Lodge, Telluride, CO. His comments and substantial articles provide valuable information for those considering this market segment. He and his team are now developing Club Elysée (SM), a multi-site PRC projected to include top-tier luxury homes in some of the world’s choicest destinations.

Panelists included Paula Gold-Nocella, Global Quarters, San Francisco (, the world’s first fractional ownership real estate brokerage, and Andy Sirkin, Esq., San Francisco, an attorney with considerable experience in this market niche.

Other breakouts covered determining the most appropriate offering, the decision to convert from whole-ownership to fractionals, and implementation variations, a follow-up to Carl Berry’s views.

Audience attention was strong for the other general sessions, all of which were excellent. These included the highly pertinent and stimulating:
  • Sharing Thoughts with Some Industry Leaders
  • Marketing in the Internet Age: Does it Really Work or Just Sound Good?
  • Variations from the Traditional Marketing Model
  • Generating Sales When Shoppers Aren’t Buying
  • Prime Time Q&A; Dick Ragatz and audience members posed questions to the nine panelists

Dick Ragatz closed with a strong wrap-up of what was an intense, highly productive conference for all fortunate to be there.

A Tale of Three Cities – and Projects
To gain the first-hand perspective that might greet Bay Area visitors interested in exploring this high-end option, I decided to visit three fractional projects. Given the area’s attractions – such as beautiful sites, spectacular scenery, fine dining, great wines, romantic atmosphere and much more that place it at or near the top among American destinations – this seemed vital.

After driving across the Golden Gate Bridge, I drove an hour nonstop all the way to the outskirts of Napa, where I reached the Orchard at the Carneros Inn (, near the southern ends of the Napa and Sonoma Valleys. I quickly viewed the attractive fractional project of 17 cottages. Here, as at the Calistoga Ranch I was scheduled to view later, modular housing units were used in an appealing way to comply with restrictive zoning requirements.

At the Orchard, exteriors were simple, and interiors were attractively designed with modern furnishings. On-site facilities include a dining area, restaurant, spa, plus all the amenities of the Carneros Inn, and a well-stocked store and café.

Then, off to Calistoga Ranch at the northern end of Napa Valley, off the Silverado Trail east of the main road, Route 29, that runs through the heart of the Valley. On the way, along the Trail, one passes the renowned Auberge du Soleil, a highly rated restaurant that is the namesake of the company managing this and other top resorts.

The Ranch’s ( Real Estate Director Josh Dempsey treated awaited two teams of fractional developers from New York State and me to a gracious tour around the 48 luxury guest lodges, welcome building and its outdoor patio overlooking the resort’s Cabernet vineyard, and Lakehouse Restaurant. One of the most popular features for “wine and dine” events is the “cellar” carved into the hillside, where owners may leave some of their special bottles, to enjoy when they visit.

From arrival, with valet parking, to the end, the experience was refreshing and very positive.

After the tour, one of the development teams and I enjoyed one of the Valley’s great pleasures: dining, with lunch at Tra Vigne, one of St. Helena’s most popular restaurants. My new friends and I parted ways to explore another of the Valley’s fabled attractions: wineries, of which there are literally dozens from which to choose.

As evening approached, I stopped for dinner at another top-rated choice in the Valley: the Wine Spectator Greystone Restaurant at the CIA (the Culinary Institute of America), also in St. Helena. The setting, food, service, and hospitality were superb.

A few days later, Fred Karpik, the Sales Director, graciously escorted me around his spectacular Fairmont Heritage Place at Ghirardelli Square project ( From the ride over in their Maserati Quattroporte to the trip back in their Lexus, the experience was memorable.

This project provides a fabulous setting for memories, the type that guests will want to share with friends, following the formula for Word of Mouth Marketing we discussed last month. Guests love it so much that it’s #1 in the social media site among all San Francisco’s 242 hotels/lodgings. The property has a perfect “5” rating, the only one in that city; five criteria are value, rooms, location, cleanliness service and sleep quality.

Its proximity to the waterfront, the shops and restaurants of Ghirardelli Square, and popular spots in the city, make it an ideal location for owners. Its many strengths also include great service, personal shoppers to stock your kitchen before arrival, valet service for your car, fully trained childcare, a warm welcome, and a family-friendly recreation area.

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