Both types of shared-ownership offerings have high satisfaction rates among owners, and each has its own well-defined, significantly sized market. Timeshares, a product for the middle- and upper-middle-class consumer, are purchased primarily to serve as a location for a prepaid vacation. Fractional interests are a product for the upper-middle-class and wealthy consumer who sees the rationale of having a second home providing the services of a luxury hotel at an affordable price and without the hassles of maintenance.

For the luxury real estate market overall, many resort real estate developers had significant sales activity increases in the first half of 2010 from the same period a year earlier, according to the fall 2010 Kelsey & Norden resort real estate survey, “Consumer Trends Emerging from Economic Crisis.” Also, of 5,161 prospective customers polled, 24 percent planned to buy luxury real estate, including fractionals and whole ownership, within the next two years, and 29 percent planned to buy at a later date.

 rezak_4_250A kitchen at the Delcanto Resort in Nuevo Vallarta, Mexico.

For a developer, receiver, or investor/owner of distressed hotels and condominiums having difficulty putting heads in beds or selling million-dollar homes in today’s marketplace, conversion to shared ownership is a logical consideration. However, while there may be many reasons why such an offering would be a terrific idea, there are as many why it might not. For help in making this important decision, talk to industry experts, such as feasibility consultants, marketing and sales consultants, and shared ownership operations consultants.

The following are a few guidelines to consider during the analysis of whether conversion to shared ownership is right for a whole-ownership or hotel property.

 – Demand in the local market. Is there a historical demand for vacation homes or vacation rentals in the market? Successful fractional offerings provide exclusive access to multimillion-dollar experiences at affordable prices. Successful timeshare offerings provide affordable prepaid vacations in condominium-style units rather than hotels. Therefore, scarcity and market demand are key ingredients needed to create the urgency to motivate purchases. Also, consider converting only part of the property to complement a hotel and/or whole-ownership condominium. 

 – Existing tourism infrastructure. A healthy tourist market with tourist infrastructure nearby is crucial. Potential customers must want to visit the area repeatedly at a variety of times throughout the year. 

 – Access. A shared-ownership home should be relatively easy to get to and typically less than five hours’ total travel time from the customer’s primary residence. 

 – Location, location, location. Within a tourism-based community, shared-ownership offerings should be within easy access of high-quality amenities, such as ski hills, beaches, and golf courses, as well as offer an outstanding view. 

rezak_5_250An interior of Los Veneros in Riviera Nayarit, Mexico. 

 – Sales and marketing expertise. After conversion to shared ownership, the sales team will need to sell each home several times. Talented and trained sales representatives will need to be hired who can build relationships, explain the product and why it makes sense for the prospective owner, and, most important, close sales. 

 – Lead generation. Consider how to generate the additional leads needed to make a shared-ownership property successful, and be prepared to have significantly higher marketing and sales expenses than were incurred with whole-ownership offerings. An operating hotel conversion provides an in-house opportunity for leads. 

 – Product development. To sell a shared-ownership property, it is important to develop a product that stands apart from the competition and is responsive to the market’s specific tourism patterns. An experienced resort management company is a key element in developing and executing a successful conversion. Among the duties this management company should handle are overseeing reservations, exchange into other like properties around the world, housekeeping, maintenance, on-site staff, standards of performance, and capital reserve funding for repairs and replacements of such things as furniture, fixtures, and equipment, roofing, and heating systems, and more. One of the biggest challenges for shared-ownership offerings that a management company can oversee is creating a use plan that provides equitable use to all owners with minimal owner effort. A professional management company also can introduce an aggressive rental program that combines the property’s resources for the homeowners association and owners to maximize occupancy and revenue generation. 

 – Facilities. Consider how the built inventory will work for shared ownership, such as the need for storage space for backup inventory of housewares, and housekeeping and maintenance supplies. Offices and a reception desk for on-site employees will be required. In addition, unit configurations may need to be rethought: one-bedroom and studio condos may be difficult to sell for shared ownership because they do not accommodate typical vacation travel parties of families, multiple couples, or groups of friends. 

 – Legal issues. Consult a lawyer skilled in the industry. All types of shared ownership, fractional interests included, are regulated under timeshare law and therefore require a significant legal investment before sales begin. Check the covenants, conditions, and restrictions recorded against the property to ensure that shared ownership is permitted. Also, look into timeshare regulation and registration requirements, which vary by state, as well as local ordinances. 

 – Consumer financing. The credit crunch has had a dramatic impact on shared ownership. Little in the way of institutional loans is available for consumers to finance shared-ownership purchases today, making it more challenging to close sales. “The [funding] void has caused developers to get creative where possible in order to generate traction,” says Dustin Carfield, principal of NextStar Funding in Steamboat Springs, Colorado. “We have worked with several projects to implement a developer-financing platform given the lack of credible options.” Carfield has observed that conversions are becoming less common as developers realize it is not a quick fix, but rather one that takes a considerable amount of work and strategic planning.

Also worth noting is that shared ownership offered in a whole-ownership community may limit the ability of those with whole ownership to get approval for Freddie Mac– or Fannie Mae– conforming loans, depending on the overall legal structure of the project.

None of these challenges is insurmountable, but each should be analyzed well before hotels and whole-ownership homes are converted to shared ownership. Soon success stories will emerge that can be attributed to careful strategic planning and involvement of industry experts. With the right planning, experts, and tools, this industry is poised to grow again.