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
- What
is the access to the resort via air, land and sea, as applicable?
- What
is the extent of existing development in the resort?
- What
is the relationship between existing development in the resort and the
capacity of the resort’s recreational facilities?
- What
is the extent of Fractional development in the resort?
- What
is the market level of the resort—e.g. upscale, mid-scale, etc.
- Is
the resort a destination or regional resort?
- What
are the income levels and demographics of the owners of vacation property
in the resort?
- What
are the usage patterns of vacation property owners in the resort by
reference to items such as:
- Degree
of owner use by season?
- Extent
of multi-week owner use? Weekend use?
Weekday use?
- How
far in advance do owners in the resort generally make reservations?
- To
what degree do owners in the resort make last-minute reservations? How last-minute are they?
Nature of the club to be developed
- What
is the location of the club within the resort?
- Is
the proposed quality level of the club consistent with the resort?
- What
is the nature and extent of amenities in the club?
- 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?
- What
is the size of the club relative to the extent of the existing development
and capacity of the resort’s recreational facilities?
- What
is the type of construction proposed—high-rise, townhouse, single family
home, other?
- Does
the club conform to zoning?
- What
are the advantages and disadvantages of including lockouts in some or all
units?
- What
is the architectural style of the proposed club and how does it compare to
existing resort development?
- What
is the interior design style of the proposed club and how does it compare
to existing development?
Business Plan
- Have
I adequately covered these items in my Business Plan?:
- Executive
Summary of a) the proposed financing and projected returns thereon; b)
the growth of the industry segment; and c) highlights of the development
- Project
Operating Pro Formas, Phase-by-Phase and Monthly together with the
assumptions for all line items
- The
Market Opportunity
- Project
Status including investment to date, status of land, status of permits
and proposed time schedule
- The
proposed investment and returns of and on capital in detail together with
projected timing of same and the proposed use of funds
- The
current status and growth of the Fractional/Private Residence Club market
segment
- 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
- 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
- Marketing
and Sales Plan overview, including market positioning and strategy and
specific marketing and sales programs
- Description
of the background and experience of company management and associated
professionals
- Summary
of relevant risk factors applicable to the project
Financing
- What
type of financing am I seeking (i.e. equity, debt, mezzanine) and how much
of each type do I want?
- What
is the typical cost range of each type of financing?
- What
are the available equity and debt financing sources?
- What
are the criteria applied by debt and equity sources in considering club
financing?
- What
are the generally required returns to the debt and equity sources?
- What
percentage of my financing will be equity and what percentage debt?
- Specifically
what financing sources are available to cover development soft costs?
- How
do I educate prospective financing sources on this relatively new market
segment?
- What
reliable statistics can I present for the growth and performance of this
segment?
- How
do I describe the performance of the Fractional/Private Residence Club
market segment to date?
- How
will I negotiate with my potential sources of each type of financing?
- What
are the advantages and disadvantages of having my representatives
negotiate the financing rather than doing so myself?
- What
areas can typically be negotiated with financing sources?
- What
pre-sale thresholds will generally be required prior to funding?
- How
can I engender investor confidence in my ability to meet these thresholds?
- What
are the detailed line items under Sources and Uses of Funds and Cashflows?
- What
are the projected sources and uses and cash flows for the project?
- Phase
by phase
- Consolidated
for all phases
- Monthly
for each line item
- What
are the assumptions for each line item in the pro forma?
- How
do my line item ratios compare to generally accepted industry standards?
- 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?
- 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?
- How
will I deal with the above situations should they arise?
- What
are the available sources of takeout mortgage financing for potential
members?
- What
criteria do these sources apply in considering commitment to a
development?
- How
do I educate these sources on this relatively new market segment and the
opportunities it presents to takeout financing sources?
- What
is the performance history of takeout financing in other Fractional/Private
Residence Club developments?
- How
do I negotiate with these takeout financing sources?
- What
are the advantages and disadvantages of negotiating myself or having
representatives do so?
- Typically,
what potential areas of negotiability are there with takeout mortgage
financing sources?
- What
takeout mortgage financing is available for members in terms of rates,
amount down, amortization period, fixed or variable interest rates?
- What
due diligence questions may I reasonably expect and how do I answer them?
Assembling the development team
- What
are the criteria for selecting team members in these areas?:
- Architecture
- Engineering
- Interior
design
- General
contractor
- Landscape
architecture
- Appraiser
- Construction
Manager
- Project
Manager
- Attorneys
(local, tax, registration, etc.)
- Accountant/auditor
- Director
of Marketing/Marketing Manager
- Ad
agency or in-house personnel (or both)
- Direct
mail agency
- Public
Relations agency or in-house personnel (or both)
- Director
of Sales/Sales Manager
- Support
personnel such as IT personnel, sales contract administrator, sales
center receptionist, etc.
- Which
of these consultants, if any, do I wish to employ? Who are among the
known leaders in the industry?
- Feasibility
analyst
- Development
consultant
- Marketing
consultant
- Sales
training consultant
- Who
will fill the above in-house and consulting roles and what is their
experience and reputation?
- What is the compensation range for each
of the above positions?
Status of permits
- What
permits are necessary to move forward with the development?
- Has
the land I’m considering already received any permits, and if so, which
ones?
- What
is the timing estimated for each of the permits remaining?
- What
are the criteria for each of the remaining permits?
- Are
these criteria objective or subjective and therefore subject to political
whim?
- What
costs can be expected in obtaining the remaining permits?
Club
structure and usage rights
- What
type of usage rights should I incorporate in the project?
- What
are the possible usage structures to be considered?
- What
are the advantages and disadvantages of these systems?:
- Rotation
system
- First-come,
first-served system
- Preferred
Reserved Week system
- Unlimited
use subject to availability
- How
should I structure my reservation system to provide for early reservations
and last-minute reservations?
- Should
I provide for back-to-back weekly reservations? If so, how?
66. Should I provide for split
week use? If so, how?
- Should
I provide for Space Available reservations? If so, how?
- How
many memberships should I sell for each condominium residence?
- 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?
- Fractional
fee simple ownership
- Equity
country club structure
- Non-equity
country club structure
- Use
rights only
- 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?
- Can I
structure the club so it will not be classified as a “timeshare” under
applicable state laws? If so, how?
- 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?
- 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”?
- If so,
what are the projected legal fees to obtain the letter and what is the
projected time frame for obtaining it?
- If
timeshare registration is required:
- What
states should I register in?
- What
are the projected legal and filing fees for each state?
- What
are time frames in each state for approval of the registration?
- Which
states provide for an initial approval allowing refundable reservations
prior to complete effectiveness of the registration?
- What
is the time frame for such initial approvals?
- What
is the advisability of retaining the right to approve new club members and
resale members?
- What
is the advisability of requiring all resales to be made through the
developer’s sales agents?
- What
is the advisability of retaining the right to control resale prices?
- What
provisions should be made for the extent and duration of developer control
of the club?
- What
is the advisability of a rental program during the sales process?
- What
is the advisability once the club is sold out?
- If a
rental program is advisable, how should it be structured and how may it be
referred to in the marketing materials?
- What
tax structuring techniques are available to developers?
- Which
tax techniques are appropriate for me and why?
- What,
if any, tax considerations should I address from the perspective of club
members?
Services
and amenities to be included
- 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?
- Which of these services and amenities
should be provided?:
- 24-hour
bell staff
- Concierge
services arranging travel and reservations to and from the resort and
within the resort
- Spa
services
- Restaurant
- Central
club room
- Changing
room for early arrivals and late departures
- Entertainment
center—DVD, VCR, etc.
- Private
internet, email and fax access
- Complimentary
transportation to and from nearby airports
- Complimentary
transportation within the resort
- Pre-arrival
grocery service
- 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?
- Describing
the points of difference of the club vs. other developments in the resort
and vs. other Fractionals generally?
- Communicating
the basic club elements—i.e. exclusivity, prestige, affinity group
relationships, service, recognition factors and value?
- Clearly
and simply explaining the nature of this new market segment?
- Conveying
the nature of the club and the
“connective tissue” to country and city clubs?
- Effectively
communicating the experiential nature of a club,
contrasting it
with traditional resort real estate investments?
- Effectively
comparing the economics of Fractional vs. whole ownership and Fractional
vs. rental?
- 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
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