Let’s be honest, we are in the middle of a historic recession and we’re all hoping it doesn’t turn into a historical depression.  What does this mean for the fractional ownership industry? 

It’s not as bad as one might think.  I tend to maintain the glass is half full mentality.  First of all it should be said that we are not talking only the U.S. here, economic problems have spread globally.  So when we talk about fractional buying habits remember that the general assumption is that this is going to apply in most markets around the world, not just in America. 

Allow me to bring out the Pierce Group Crystal Ball.  We will likely see our economic future broken down into three phases:  the “Help Us All!” phase is the first, followed by the “We Survived, What Now?” phase, and then of course the “It’s Over, Let’s Spend More and Go Back into Debt” phase.  To understand what the future might bring for fractional real estate developers let’s look at how these phases will influence the savvy buyer.  The savvy buyer is the fractional industry’s target market – 45 to 65 with successful careers and kids in or moving towards college.  (Initially Duke but now Boise State)

Phase 1 - “Help Us All!” 

We are in a period of uncertainty right now and many people are simply scared, this is completely understandable.  The savvy buyer however is playing the waiting game.  They might move some money around here and there, but overall they are financially OK and will be in relatively good shape as we move into phase 2.  The important issue to remember is that during Phase 1, nobody will be buying anything short of the new Sarah Palin action figure for Christmas.  This phase should only be temporary (knock on wood) and once the election is over and we get through the holidays things should level off.

This is a game of Chess for lenders and developers.  They need to be calculating what their next move will be when the buyers come back and preparing accordingly.  These low times are when the most successful are the most active.

Phase 2 – “We Survived What Now?”

This is what the majority of the folks (Bill O’Reilly reference) will be saying, “We survived but what do we do now?”  This is the point where the savvy buyer begins to execute on their savvy buying decisions.  In 2009 everything will be a serious bargain, even compared to the relatively low prices that we saw this year.  But let’s take a look at what those savvy second home buyers will be snatching up.  This is where those developers and lenders who decided to go fractional will win. 

The savvy buyer took a pretty serious financial hit as everyone else did and in 2009 we’ll still be in a very distressed economy.  The chances that those savvy baby-boomers are going to plunk down big money for a whole ownership second home are pretty slim - we haven’t yet reached phase three.  Condo Hotels will be a distant memory at this point, they pretty much are now.  They have fallen completely out of favor with buyers due to alleged SEC violations and the resulting lawsuits on developers.  Timeshare sales numbers will continue to fall because its target market will be much harder hit by phases one and two. 

That leaves fractional ownership, a perfect compromise.  Why not buy deeded ownership in a desirable local at a phenomenal price with reasonable annual expenses?   

Phase 3 - “It’s Over, Let’s Spend More and Go Back into Debt”

I don’t need to spend any blog space on this one.  Reference 2003-2008.

So what is the answer?  Convert!  It is important that developers and lenders position themselves correctly right now, in Phase 1.  Whole ownership condo and condo hotel properties should be considered for fractional conversion.  When savvy baby boomers start buying again, fractional will be the most practical way to go and my friends we are all going to be making practical buying decisions for the foreseeable future… sorry Starbucks, the $4 Vanilla Latte is a memory for most.  Concentrate on selling boring old coffee, stage three won’t come around for quite some time.

Eric Pierce

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For Immediate Release

PIERCE GROUP ALLIANCE OFFERS LIFELINE TO AILING

CONDO HOTEL LENDERS AND DEVELOPERS

        PICKENS, SC (October – Pierce Group, LLC and Vacation Finance today announced the formation of a strategic alliance to provide comprehensive conversion services to distressed developers and lending institutions with unsold condominium and condo hotel inventory.  With expertise in fractional ownership finance, marketing, sales and operations, the alliance helps faltering projects regain their footing.

     While the real estate market has slumped across the board, condo hotel projects have been especially hard hit by a decrease in buyer interest as dreams of big investment returns have fizzled, and an increase in developer concern as class action lawsuits form to address alleged SEC violations in the industry. 

     “Developers and bankers now are scrambling to find ways to turn what unfortunately have become white elephants into profitable projects,” said Eric Pierce, CEO of Pierce Group, a consulting firm specializing in the design, sales and marketing of private residence clubs and fractional ownership developments.  “For many, fractional ownership may be the answer.”

        Luxury second home properties are one of the few growth sectors in today’s unsettled real estate market.  According to the “2008 Annual Fractional Interest Report” by NorthCourse® Leisure Real Estate Solutions, high-end luxury fractional real estate sales surpassed $1.9 billion in 2007 in the U.S., Canada and the Caribbean, up 18 percent from 2006.

         Fractional ownership – especially private residence clubs – offers distinct advantages to developers and buyers, according to alliance member Bob Waun, CEO of Vacation Finance, specializing in second-home commercial financing for developers and innovative mortgage solutions for buyers.  According to Waun, even in a down market buyers are attracted to residence clubs because of the lower upfront and annual costs and desirable resort locations.  “But developer beware,” said Waun.  “A great opportunity can’t survive a misguided concept.”

     According to Waun, not every project is right for fractionalization, and few developers understand the intricacies well enough to make them succeed.  The alliance was formed, he said, to offer developers and lenders the expertise to assess success potential.  Using data assembled from both thriving and failed fractional and condo hotel projects throughout the U.S., the team designs the private residence club structure, the financing model and the sales and marketing approach to match the unique project needs.  

      “With capital harder to come by, credible projections and the proper capital structure are critically important,” says Kevin Stolz, principal of Kevin Stolz & Associates.  Stolz will provide detailed financial analysis support to the alliance and recommend additional capital outlets and capital structures where needed.  

     The alliance also provides banks with receivership services.  Real Estate Receiver Dennis Heck, owner and operator of U.S. Coastal Development, LLC, has joined the alliance to provide lenders with a simple and streamlined process to convert their fledgling condos into fractional ownership properties.  “Understanding current market conditions as well as future market trends is key to being a qualified real-estate receiver,” said Heck.  “Protecting the lender’s collateral and putting into place solid business and marketing plans to retire the debt also are essential. This is where a well-organized professional team is critical.”

     According to the alliance members, the goal is to offer developers the resources to implement a conversion plan as efficiently and cost effectively as possible and get sales phones ringing again.

     “Pierce Group is now able to provide the fractional industry’s most comprehensive suite of services — from feasibility analysis and financial models to recommended capital structure, consumer financing, development financing, sales and marketing” said Pierce.   “Everything a developer needs is under one collective roof.”

—For more on Pierce Group, LLC visit:  www.PierceGroupConsulting.com

—For more on Vacation Finance and Kevin Stolz visit: www.Vacation-Finance.com

—For more on U.S. Coastal Development, LLC. visit: www.RealEstateReceivership.com

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Here is a sneak preview of a new program that bundles a suite of services to provide condominium and condo hotel developers and lenders a way out of what is now an unfortunate situation: no sales.

The suite of services being launched this week will likely be named the Fractional Conversion Program.  Condo hotel buyers have become few and far between due to a myriad of issues with owner class action suits against developers, some with regards to alleged SEC violations.  Whole ownership buyers are not raising their hands either.  With the economy still in a nose dive, there are not a lot of families standing in line for their own second home. 

Pierce Group, LLC, and Vacation Finance are teaming up to provide a suite of services tailored exactly for this situation.  We have thought of everything. We even have a Court-Appointed Receiver waiting in the wings if need-be.  We also realize that these services need to be affordable.  If conversion is too expensive it’s pointless.

Look for a program that includes a comprehensive feasibility study, financial model, recommended capital structure, commercial financing, consumer financing and sales and marketing management services.

Many are realizing that a more practical solution is to buy fractionally; more specifically buy into a Private Residence Club (PRC).  Yes, purchasing a deeded piece of real estate on valuable resort property is a good idea, but doing it fractionally is an even better idea.  Furthermore, many baby boomers and Gen Xers now realize it and sales continue to increase.  Fractional ownership’s up front and annual costs are nominal compared to the alternative option of a whole ownership million dollar purchase in High-Brow, Florida.  Moreover, owners can use their PRC interest when they choose and as much as they choose.  Throw in all of the high-end services and amenities and fractional ownership becomes a very attractive proposition.

So what to do with a condo development that is producing nothing but headaches for its worried sales people?  Convert it to fractional ownership.

Please keep an eye on this blog and SecondHomes411 for more info. 

Eric Pierce

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I read yet another ad promoting a luxury fractional ownership community and once again saw those dreaded words, “…creating special memories”.  Is it just me or haven’t we heard enough of this? 

Yes, I know the message: if I buy at Super Duper Beautiful Pines Private Residence Club then I will be able to share precious moments with my family and I’ll remember them forever.  Of course I would never have that experience if I buy somewhere else.  Please, let’s start using other methods.  Do we really think Mr. Successful family guy looking through Friday’s WSJ is going to read those words for the millionth time and yell, “Hey Honey!  If we buy at Beautiful Pines it will allow us to create really special memories!  Let’s call!” 

I don’t think so.

Actually, the first time I heard that phrase I was impressed.  “Nice spin”, I thought.  But that was sometime during the Carter administration.  Start thinking out of the box people!  Oops, there’s another one. 

To marketers’ defense, it is difficult to think of new ways to promote the experience.  Instead of “creating memories” we could try “forgetting current events”; that should work particularly well right now.  How about this:  “Replace the stress between your ears with the sand between your toes”.  I know… that’s a bit of a stretch.  Continue to use beautiful photos and search for new ways to relay the experience you provide.  Just get the reader to your web site and wow them from there. 

If anybody has new thoughts, please share.  The ink is still drying on Friday’s WSJ and I’m getting nervous.

Eric Pierce

FORESIGHT COSTS LESS THAN HINDSIGHT^SM

I will now review a topic that is seriously deserving of some blog time, the dissemination of information (or lack there of) to the fractional buyer in the earlier stages of the sales process.  The usual perception is that the information might be too complex and too confusing, or the reader might directly relate the project to timeshare and thus lose interest before completely understanding it.  Therefore, the sales process is often extended into months rather than weeks.  We all know that this industry is nothing like timeshare and these fears must be conquered.  The prospect must be provided the information needed to make an educated and informed decision in a reasonable amount of time, a 90 day forecast to contract is nonsense.

The debate is this: if we present too much information too fast then the vomit effect comes into play and the sale is lost.  Most sales people who have been subjected to any type of basic sales training course have likely been introduced to something similar to what I like to call the “Vomit Crevice”.  It could also be called the “Vomit Crack” but that sounds even worse. 

The premise is that sales people stand on the edge of an empty crevice which lies between them and their prospective buyer.  This crevice represents the buyer’s lack of understanding of the product or service they are considering.  The only way to facilitate a connection between the buyer and seller is to fill up that void with valuable and relevant information that is important to the buyer.  Each valuable and relevant question answered represents a large boulder that is tossed into the crevice.  The result is a crevice that has been filled with a solid foundation of boulders (information) thus giving the prospect the means to walk across and shake hands – a closed sale.

However, many young sales people are hell bent on spewing as much information as humanly possible regardless of whether or not the buyer actually cares about any of it.  This is a classic rookie move.  The default for freshly-trained sales people is to vomit every bit of detail about their product or service that they have just learned in their product training classes.  (This is where it gets really gross.)  A crevice full of vomit is nothing but a disgusting pool that the prospect will sink into when attempting to walk across and therefore results in a lost sale for the sales person.  Needless to say, no buyer is going to shake the hand of someone who just led them into a pool of vomit!

How does all of this apply to fractional ownership sales?  Easy; fractional sales people have a more challenging task than a typical real estate agent.  Fractional folks don’t play in a world of just granite countertops, cherry wood floors and 5,000 square feet.  That stuff is easy.  In the fractional world the prospective buyer must completely understand everything from why it is a logical real estate purchase, to the unmatched experience provided in residence, to the fair and flexible reservation system and why it’s not a timeshare.  You can see why it becomes very easy for a fractional sales person to become completely immersed in all of this information and commence vomiting all over the place.  Information starts flowing about the Residence Club’s logarithmic tie-break system when the prospect simply wanted to know if they could go skiing next year.

So, you’re thinking the clear lesson here is to make sure that your sales people do not spew all of their information up front and take it one step at a time, easing the prospect into those nitty-gritty details.  Not so fast.  There is another factor at play here; closing the deal while the iron is hot.  This is a major rebuttal to the vomit crevice.  After all, in similar fashion to the “first 48” that cops have to catch their criminal, sales people have a limited window to reel in their interested buyer as interest can fade almost immediately. 

This is basically a catch 22.  It seems as though the answer is to proceed with information overload to try and bring in the sale while the prospect is hot.  Actually, this is correct.  The way to do it is with coordinated messaging between your sales team and your sales materials.  When I refer to sales materials I mean marketing brochures, FAQ’s and the website.  A second document entitled Advanced FAQ’s should also be considered for those hot leads in the final stages of the sales process. 

Too many times I look through web sites of Private Residence Clubs that have literally no information except the beautiful mountain surroundings and granite countertops.  This is the “tease strategy” and the idea is to get the buyer interested enough to make the phone call so the sales person can take over.  The result…  vomit.  The poor prospect has now been completely overwhelmed with (deep breath) planned vacations, space available vacations, the flexible tie-breaker system, pricing, supply and demand, HOA dues, consumer financing, the daily tidy vs. the mid-week clean, the reservation deposit, no pets but your brother can use it but only on planned vacations, and I almost forgot - the upcoming price increase. 

Next will surely come those famous words: “I’m not interested in a timeshare”. 

Don’t go this route.  Give the buyer more information.  An informed prospect is a valuable prospect.  Put the price on your website!  Yes, I’ll say it again.  Put the price on your website!  If the price is surrounded by valuable information regarding how the club works along with the unmatched experience that is provided then the price will look great and the phone will ring.  What you don’t want to do is vomit all over your website, there is a happy-medium here.  Simply put, there is stuff that can go on the site and there is stuff that can’t.  For example, explaining how the “rotating priority tie-breaker to be fair to everybody” policy works should NEVER be explained in any detail on the web site.

The sales team should work in concert with the marketing team on the dissemination of information to the buyer.  The sales person should hang up with an intrigued buyer, not confused.  They should be anxious to read more detail on the website or in the e-brochure that has just been sent to their inbox – good reading for the spouse as well.   

In summary, we must vomit to a point; a point that creates excitement and moves the sales process forward in an efficient manner.  However, the spewing should be done by the marketing materials and the web site in addition to valuable information from the sales team.  As the sales process moves along the questions and answers will become more advanced and cover more detail.  It’s much easier to explain the “rotating priority tie-breaker to be fair to everybody” policy when the buyer is already excited for their first trip.

Now start spewing.

Eric Pierce

www.PierceGroupConsulting.com

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All we hear about is how the Baby Boomers are entering their retirement years and that fractional real estate ownership is poised to explode not only because it’s smart but because we have 37 kazillion Baby Boomers that are nearing retirement.  While this is true, there is another often forgotten group of buyers - Boomer offspring.  Yes, Generation X will play a significant role in fractional ownership sales for the foreseeable future. 

Ignoring Gen X is nothing new.  It is loosely defined as those born between the years 1965 and 1980, and it continues to be somewhat of an after thought.  With all of the Baby Boomer hubbub and the Millennial banter on almost every topic imaginable (including vacation ownership) Generation X represents a 15 year space in history.  I am a Gen X and while that doesn’t make me an expert on my generation it gives me a bit of a leg up. 

The 51 million Americans who represent Generation X, the eldest of which are now turning 44, are going to play a very important role in fractional sales.  This generation does in fact have disposable income and an enormous desire to spend it.  Let’s take a look at some interesting results from the 2005 American Express Platinum Luxury Survey in which the respondents were 250 Baby Boomers and 250 Gen Xers with incomes ranging from $125k to $199k.  (I used 2005 because that is the only study where the two generations were compared to one another)

According to the survey, “The Boomers are at a different life stage and thus have accumulated many of the “big purchases” the Gen X are currently making, or planning to make. The Boomers are more likely to own original art (31% as compared with 24% among Gen X), a fine jewelry collection (29% to 25%), a vacation/second home (26% to 18%) and an antique or other collection (24% to 18%). Members of Gen X, by comparison, are more likely to place a greater emphasis on active or experiential ‘toys’ such as sports cars, (owned by 28% of Gen X compared with 24% of Boomers) and boats and yachts (21% to 17%).”

So let’s look at these results from a fractional ownership perspective.  If Generation X is more concerned with ‘toys’ then that should make them prime candidates for buying fractionally as opposed to whole ownership.  Why waste gobs of money on a private second home when it can be spent on so many other ‘fun’ things!  My generation is more likely to admit that a private second home isn’t logical and would consider it a waste of money and resources.  By wasting resources I mean building second homes that just sit around empty is not very “Green”.  Green is more than a buzz word now and is becoming extremely important to my generation, but that’s for another blog.

Another excerpt from the study…

“…in a number of luxury experience categories Gen X spending exceeds the Baby Boomers:

33% more than Boomers for entertainment ($3,629 vs. $2,722),

17% more for personal/health services ($3,324 vs. $2,838),

11% more for sporting events ($4,176 vs. $3,769).”

Pam Danziger, founder of Unity Marketing, a consulting firm that specializes in marketing to the luxury market, conducted the Platinum Luxury Survey.  She says, “Marketers tend to think of the Gen Xers as a cohort too small to even worry about, but this research shows that Gen X may be small in size but they are mighty in luxury buying power… They are in a more youthful life stage and are accumulating a lot of big, material goods. Their influence is destined to grow even more in the luxury market in the future now that the leading edge of this generation reaches 40* years of age this year.”  (*That would be 44 this year)

In the book “Beyond Generation X” by Claire Raines, the first chapter is about showing the Gen X workforce appreciation for what they do.  More so than previous generations, Xers appreciate recognition and appreciation.  They also like to be included in all aspects of their work and have a desire to voice their opinions.  Use these behavioral characteristics to improve the level of experience provided by your management team.  More personal attention and a desire to hear the owner’s opinions will go along way.  A high level of service at a luxury Private Residence Club is of great importance to any generation, the difference however is that Boomers simply expect it while Gen X will more likely appreciate it and tell their friends about it.  If your hospitality management team focuses the right amount of effort and attention on a Gen X owner then look out for referrals! 

My advice for selling fractional real estate to the Generation X buyer (and even the Gen Y or Millennials for that matter) is twofold: 

1)  Gen Xers are more resourceful and don’t rely on people to guide them like Baby Boomers do.  They like to do their own research and then contact you with questions.  So provide them more information on what you are selling and provide it earlier in the sales process.  More informed buyers are more qualified buyers for your sales team and everyone will benefit from shorter sales cycles.  

2)  Focus on these types of messages in your marketing:   

-“You are important to us, we’ll treat you like a king”

-“We’ll take care of your home, you take care of yourself”

-“Use your home when you choose, as much as you choose”

-“Vacation logically, spend your money logically”

-“Your time off is important to you, spend it wisely”

If you spend a little extra time considering the X market you’ll have better results moving forward.  Plus, if you target Generation X then you’ll inevitably reach twice as many Baby Boomers along the way.  There are 79 million of them, how can you miss?

***

Eric Pierce is the founder and President of Pierce Group, LLC.  A provider of consulting services to the Fractional Real Estate industry including Private Residence Club developments.  To learn more about Pierce Group visit www.PierceGroupConsulting.com