Understanding Fractional Ownership of Real Estate. Park City Utah MLS

 The objective with the blog at www.MountainDreamHouse.com is to help potential home buyers understand the Park City Real Estate market. I provide my writings or other credited articles so that our quirks in Park City may be better understood and ease the buying experience.   

Please read on to better understand Fractional Ownership: 

 Fractional ownership may be found on the Park City Utah MLS:

"RESORT REAL ESTATE PERSPECTIVES                      Volume II, Number 1, April 2003

  

158 QUESTIONS TO GUIDE A SUCCESSFUL FRACTIONAL DEVELOPMENT

        by David M. Disick, Esq.

In Volume I, Number 1 of these Perspectives, we discussed some relevant issues in terms of product definition, marketing and sales techniques and capital raising.

In this paper, we set forth some questions to be addressed in developing a successful Fractional or Private Residence Club project.

We welcome your comments and input based on your own experiences to be reviewed for inclusion in an expanded version of this paper.  We would also value knowing which topics you would most like the author to address in subsequent papers.

The Club’s resort venue

1. What is the access to the resort via air, land and sea, as applicable?
2. What is the extent of existing development in the resort?
3. What is the relationship between existing development in the resort and the capacity of the resort’s recreational facilities?
4. What is the extent of Fractional development in the resort?
5. What is the market level of the resort—e.g. upscale, mid-scale, etc.
6. Is the resort a destination or regional resort?
7. What are the income levels and demographics of the owners of vacation property in the resort?
8. What are the usage patterns of vacation property owners in the resort by reference to items such as:
1. Degree of owner use by season?
2. Extent of multi-week owner use? Weekend use?  Weekday use?
3. How far in advance do owners in the resort generally make reservations? 
4. To what degree do owners in the resort make last-minute reservations?  How last-minute are they?

Nature of the club to be developed

9. What is the location of the club within the resort?
10. Is the proposed quality level of the club consistent with the resort?
11. What is the nature and extent of amenities in the club?
12. What is the proposed unit size and configuration and how do they compare to existing vacation properties and to the general size of vacation parties?
13. What is the size of the club relative to the extent of the existing development and capacity of the resort’s recreational facilities?
14. What is the type of construction proposed—high-rise, townhouse, single family home, other?
15. Does the club conform to zoning?
16. What are the advantages and disadvantages of including lockouts in some or all units? 
17. What is the architectural style of the proposed club and how does it compare to existing resort development?
18. What is the interior design style of the proposed club and how does it compare to existing development?

Business Plan

19. Have I adequately covered these items in my Business Plan?:
1. Executive Summary of a) the proposed financing and projected returns thereon; b) the growth of the industry segment; and c) highlights of the development
2. Project Operating Pro Formas, Phase-by-Phase and Monthly together with the assumptions for all line items
3. The Market Opportunity
4. Project Status including investment to date, status of land, status of permits and proposed time schedule
5. The proposed investment and returns of and on capital in detail together with projected timing of same and the proposed use of funds
6. The current status and growth of the Fractional/Private Residence Club market segment
7. Detailed analysis of the area describing the resort, the proposed club, the area real estate market including market history, current market, market depth, competition, pricing trends and sales velocity statistics
8. The specific project including a) comparison to local and national competition; b) condominium unit types, amenities, architecture, décor, etc.; c) member privileges and services; d) offering program—unit mix; membership structure; usage rights and member benefits; and e) a feasibility analysis for the project
9. Marketing and Sales Plan overview, including market positioning and strategy and specific marketing and sales programs
10. Description of the background and experience of company management and associated professionals
11. Summary of relevant risk factors applicable to the project

Financing

20. What type of financing am I seeking (i.e. equity, debt, mezzanine) and how much of each type do I want?
21. What is the typical cost range of each type of financing?
22. What are the available equity and debt financing sources?
23. What are the criteria applied by debt and equity sources in considering club financing?
24. What are the generally required returns to the debt and equity sources?
25. What percentage of my financing will be equity and what percentage debt?
26. Specifically what financing sources are available to cover development soft costs?
27. How do I educate prospective financing sources on this relatively new market segment? 
28. What reliable statistics can I present for the growth and performance of this segment?
29. How do I describe the performance of the Fractional/Private Residence Club market segment to date?
30. How will I negotiate with my potential sources of each type of financing?
31. What are the advantages and disadvantages of having my representatives negotiate the financing rather than doing so myself?
32. What areas can typically be negotiated with financing sources?
33. What pre-sale thresholds will generally be required prior to funding?
34. How can I engender investor confidence in my ability to meet these thresholds?
35. What are the detailed line items under Sources and Uses of Funds and Cashflows?
36. What are the projected sources and uses and cash flows for the project?
1. Phase by phase
2. Consolidated for all phases
3. Monthly for each line item
37. What are the assumptions for each line item in the pro forma?
38. How do my line item ratios compare to generally accepted industry standards?
39. What is my conservative pro forma; my downside pro forma; and my optimistic pro forma and how does each affect the deal presented to prospective investors?
40. Have I adequately anticipated in my pro forma all the occurrences that might impact the project such as cost overruns, slower sales velocity than projected and lower price increases than projected? 
41. How will I deal with the above situations should they arise?
42. What are the available sources of takeout mortgage financing for potential members?
43. What criteria do these sources apply in considering commitment to a development?
44. How do I educate these sources on this relatively new market segment and the opportunities it presents to takeout financing sources?
45. What is the performance history of takeout financing in other Fractional/Private Residence Club developments?
46. How do I negotiate with these takeout financing sources?
47. What are the advantages and disadvantages of negotiating myself or having representatives do so?
48. Typically, what potential areas of negotiability are there with takeout mortgage financing sources? 
49. What takeout mortgage financing is available for members in terms of rates, amount down, amortization period, fixed or variable interest rates?
50. What due diligence questions may I reasonably expect and how do I answer them?

Assembling the development team

51. What are the criteria for selecting team members in these areas?:
1. Architecture
2. Engineering
3. Interior design
4. General contractor
5. Landscape architecture
6. Appraiser
7. Construction Manager
8. Project Manager
9. Attorneys (local, tax, registration, etc.)
10. Accountant/auditor
11. Director of Marketing/Marketing Manager
12. Ad agency or in-house personnel (or both)
13. Direct mail agency
14. Public Relations agency or in-house personnel (or both)
15. Director of Sales/Sales Manager
16. Support personnel such as IT personnel, sales contract administrator, sales center receptionist, etc.
52. Which of these consultants, if any, do I wish to employ?  Who are among the 

 known leaders in the industry?

1. Feasibility analyst
2. Development consultant
3. Marketing consultant
4. Sales training consultant
52. Who will fill the above in-house and consulting roles and what is their experience and reputation?
53.  What is the compensation range for each of the above positions?

Status of permits

55. What permits are necessary to move forward with the development?
56. Has the land I’m considering already received any permits, and if so, which ones?
57. What is the timing estimated for each of the permits remaining?
58. What are the criteria for each of the remaining permits?
59. Are these criteria objective or subjective and therefore subject to political whim?
60. What costs can be expected in obtaining the remaining permits?

Club structure and usage rights

61. What type of usage rights should I incorporate in the project?
62. What are the possible usage structures to be considered?
63. What are the advantages and disadvantages of these systems?:
1. Rotation system
2. First-come, first-served system
3. Preferred Reserved Week system
4. Unlimited use subject to availability
64. How should I structure my reservation system to provide for early reservations and last-minute reservations?
65. Should I provide for back-to-back weekly reservations?  If so, how?

66. Should I provide for split week use?  If so, how?

67. Should I provide for Space Available reservations?  If so, how?
68. How many memberships should I sell for each condominium residence?
69. How do the use rights proposed compare to a) use patterns of owners in the resort; and b) use rights systems in other Fractionals?

Legal and related issues

70.  What should the form of the membership be?

1. Fractional fee simple ownership
2. Equity country club structure
3. Non-equity country club structure
4. Use rights only
70. What are the advantages and disadvantages of each of the above forms of ownership—from the legal point of view as well as from the perspectives of marketability and availability of takeout mortgage financing?
71. Can I structure the club so it will not be classified as a “timeshare” under applicable state laws?  If so, how?
72. If it is possible to structure the club so as not be classified as a “timeshare,” what are the advantages and disadvantages of doing so?
73. Will I need a “no action” letter from the timeshare authorities in the applicable states confirming the club will not be regarded as a “timeshare”? 
74. If so, what are the projected legal fees to obtain the letter and what is the projected time frame for obtaining it?
75. If timeshare registration is required:
1. What states should I register in?
2. What are the projected legal and filing fees for each state?
3. What are time frames in each state for approval of the registration?
4. Which states provide for an initial approval allowing refundable reservations prior to complete effectiveness of the registration?
5. What is the time frame for such initial approvals?
76. What is the advisability of retaining the right to approve new club members and resale members?
77. What is the advisability of requiring all resales to be made through the developer’s sales agents?
78. What is the advisability of retaining the right to control resale prices?
79. What provisions should be made for the extent and duration of developer control of the club?
80. What is the advisability of a rental program during the sales process?
81. What is the advisability once the club is sold out?
82. If a rental program is advisable, how should it be structured and how may it be referred to in the marketing materials?
83. What tax structuring techniques are available to developers? 
84. Which tax techniques are appropriate for me and why?
85. What, if any, tax considerations should I address from the perspective of club members?

Services and amenities to be included

87.  What are the advantages and disadvantages of including usage rights for the area’s major recreational facilities—e.g. skiing, golf, etc. as one of the member privileges? 
88.  Which of these services and amenities should be provided?:
1. 24-hour bell staff
2. Concierge services arranging travel and reservations to and from the resort and within the resort
3. Spa services
4. Restaurant
5. Central club room
6. Changing room for early arrivals and late departures
7. Entertainment center—DVD, VCR, etc.
8. Private internet, email and fax access
9. Complimentary transportation to and from nearby airports
10. Complimentary transportation within the resort
11. Pre-arrival grocery service
12. Other

89.  What are the advantages and disadvantages of the developer retaining  

 ownership of the project’s amenities or transferring them to the HOA?

Affiliations to consider

90. What are the advantages and disadvantages of a hotel brand?

      91. What hotel branding relationships are appropriate and available?

92. What is the availability of joint marketing with either a hotel brand or with 

       existing hotels in the resort?

93.   What are the advantages and disadvantages of an exchange network?

94.  What exchange network relationships are available?

95.  What are the advantages and disadvantages of affiliation with city and 

       country clubs in appropriate locales?

            96.  What city and country clubs are available for that type of affiliation?

97.  What professional organizations should I join?

98.  What relevant publications should I subscribe to?

99.   What conferences and seminars should I consider attending?

Marketing considerations

100. What should the name of the club be?  Why?

101. What is the overall market positioning and slogan for the club?

            102. What are the specific marketing programs contemplated at each juncture in 

                    the evolution of the development?

103. In what cities and states will I market?  What is the basis of this decision?

104. What specific occupational groups will my marketing target?

105.  How can I obtain lists of qualified purchasers in the major feeder cities and 

         states?

106.  What programs may I use for updating my initial data base?

107.  Have I adequately surveyed the prospective member universes to be 

         responsive to what they want in the club? 

108.  What items should be included in questionnaires to prospective members?

109.  Where will the Membership Preview Center be?  Why this location?

110.  How do I design it for maximum effectiveness?

111.  How do I encourage visitors at the resort to visit the Preview Center?

112. What provisions have I made for site and building models?

113. Which of the following marketing programs will work for me and what are 

  the details of each?

a.       Focus groups

b.      Pre-marketing questionnaire

c.       Pre-marketing teaser campaign

d.      Selection event marketing

e.       Direct mail program

f.       Broker referral program

g.      Founding Member Program

h.      Member referral program

i.        Member testimonials

j.        Mini-vacations

k.      Website and internet surveys

l.        Off-site events

m.    Satellite offices

n.      Strategic alliances (with local transportation, restaurants, shops, etc.)

o.      Newsletters

p.      Promotions and special events

q.      Advertising—local, state, national

r.        Public relations—local, state, national

s.       Anti-rescission programs

t.        Developer letters

u.      Other

114. What are the advantages and disadvantages of an Off-Premise Contact 

  Program?

115. Which of these collateral materials will I use in my marketing program?

a.       “Teaser mailings”

b.      Handout property brochure or rack brochure

c.       “Discovery Kit” including “Beauty Brochure,” area maps, site map, building and unit plans, summary of HOA documents, summary of condominium documents, Frequently Asked Questions, explanation of reservation and purchase procedures, reservation form, purchase agreement, etc.

d.      Letters to specific groups (rental guests, visitors to the area, etc.)

116.   If I don’t have a major hotel brand, how can I generate the national  

   marketing scope, lists, credibility and quality assurance of a brand?

117.   How effectively do my marketing materials cover these areas?:

 a.  Correctly positioning the club and conveying the company’s mission?

1. Describing the points of difference of the club vs. other developments in the resort and vs. other Fractionals generally?
2. Communicating the basic club elements—i.e. exclusivity, prestige, affinity group relationships, service, recognition factors and value?
3. Clearly and simply explaining the nature of this new market segment?
4. Conveying the  nature of the club and the “connective tissue” to country and city clubs?
5. Effectively communicating the experiential nature of a club,

contrasting it with traditional resort real estate investments?

6. Effectively comparing the economics of Fractional vs. whole ownership and Fractional vs. rental?
7. Describing the track record of the development and management team

118. What is my public relations strategy for relating with the local brokerage 

         community and the local community generally?

119. What are the advantages and disadvantages of a mixed use development—

  i.e., incorporating a club within a traditional upscale hotel?

120.  If I decide on a mixed use development, how do I determine how many units

   to dedicate to the club at the outset? 

121.  In a mixed use development, how can I legally expand the number of units 

  dedicated to the club, if market demand warrants it?

122.  In a mixed use development, how can I market to hotel guests on property

         without interfering with their hotel experience?

123.  What programs and materials can be used to motivate local brokers to refer 

  prospective members?

Sales considerations

124.  What are the specific sales programs contemplated at each stage in the 

          evolution of the development?

125.  What is the initial pricing determination and price increase strategy? 

126.  How do the prices compare to:

a.   Any Fractional pricing in the resort overall, on a price per guaranteed week basis and a price per square foot basis?

b.   Fractional pricing nationally, on a price per guaranteed week basis and a price per square foot basis?

c.       Whole ownership pricing in the resort on a price per square foot basis?

127.  What is the projected sales velocity? 

128.  How has the projected sales velocity been calculated? 

129.  How does the projected sales velocity compare to local and national 

         experience?

130. What provisions have been made for relations with local brokers to make 

                     them feel part of the process; to protect their commissions and referral fees;  

         to have strict systems for pre-registering names; and to avoid competition 

         between membership executives and local brokers for general real estate 

         sales?

131.  What provisions are there for training the membership executives?

132.  What is the structure of the “tour” and the basic script for each part?

133.  How do I make sure that all membership executives know the correct facts 

   regarding the club and that all representations are correct?

134.  What techniques can be employed to convey urgency to prospective

          members?

135.  How do I control the release of club inventory?

136.  What, if any, programs will be adopted to support membership resales? 

Sales and marketing management issues

137.  What procedures can be established for creating and maintaining a  

         database on member usage, expectations, preferences, etc.?

138.  What systems can be employed for evaluating the cost effectiveness of 

          each marketing and sales program and each marketing and sales person?

139.   How can I effectively communicate marketing and sales goals to all team 

         members and motivate them to achieve these goals?

140.  How do I determine the appropriate number of membership executives?

141.  Will the membership executives be independent contractors or employees?  

142.  What are the advantages and disadvantages of each relationship?

143.   If independent contractors, will there be a draw against commission?  If so, 

          what will it be?

144.  What will be the sales commission and incentive structure for membership 

          executives?

145.  What techniques will be employed for sales training?

Overall company management issues

146.  What is the company’s “Mission Statement”? 

147.  How will the Mission Statement be communicated inside and outside the 

          company?

148.  What systems will be employed to measure performance in all areas?

149.  What is the optimum style of team leadership—e.g., visionary,

          supportive, commanding etc.?

150.  What techniques can be employed to prevent a dissonant corporate culture?

151.  How can senior management and employees take part in the financial          

         success of the development?

152. What employee benefits will be offered?

Club management issues

153.  How do I determine HOA dues and their relation to the services offered?          

154.  How do the projected HOA dues and services compare to dues and services 

  at comparable developments in my resort and in the industry generally?

155.  How do my HOA dues per guaranteed week of use compare to industry 

         statistics?

156. What are the advantages and disadvantages of having members pay a 

reduced rack rate when in residence, with the amounts paid used to fund  club operating costs and thereby reduce maintenance costs?

157. What steps can be taken to assure that club management will meet the  

  expectations engendered in the sales and marketing process?

158. What management techniques can be employed to reinforce the message 

         of “clubbiness”?

                                    *                      *                      *                      *

David M. Disick, Esq. is the president of David M. Disick & Associates, a development advisory firm specializing in Fractionals and Private Residence Clubs.  He is the originator of the Private Residence Club market segment of vacation ownership, having developed one of the first two Private Residence Clubs in the United States, the successful Franz Klammer Lodge—Phase I in Telluride, Colorado. 

He has been a panelist at the American Resort Development Association, the Urban Land Institute, the Ragatz Fractional Interest Symposium, the American Hotel and Motel Association and others.  His articles have appeared in numerous professional resort development journals.

As an experienced developer, Mr. Disick has hands-on knowledge and expertise in all aspects of successful Fractional development. He has succeeded in raising well in excess of $250 million for Fractional real estate development financings.

Mr. Disick is a graduate of Cornell University and the University of Pennsylvania Law School.  For many years he was a partner in the Manhattan office of a national law firm where he specialized in deal making and capital raising via Private Placement Offerings and securities registrations. 

For readers wishing to comment on this paper, offer suggestions for future papers or discuss development advisory services, Mr. Disick can be reached at (a) Telephone:  435-940-0969; (b) Cell:  435-901-0247;  (c) Fax:  435-615-7328; or (d) Email: ddisick@msn.com."         

Presented by : Derrik Carlson
435.200.5478
Keller Williams Park City

Free Park City MLS Search!

Park City Utah Houses
Park City Real Estate Listings
Park City Real Estate MLS

Homes for Park City
Park City Homes
Real Estate Park City Utah
Homes for Sale Park City Utah
Homes  for Sale in Park City Utah
Park City Real Estate Agent
Park City Real Estate for sale
Park City For Sale
Park City Condo
Park City Ski In Ski Out Home

You may also search for ~
Homes Park City Utah
Park City Utah MLS
Deer Valley Real Estate
Park City Luxury Real Estate