At Pierce Group, we are optimistic for a fractional real estate sales uptick beginning in 2011 and 2012.  Here are a few reasons why:

1. Vacation home sales rose 7.9% in 2009 as compared to the sharp decline of (30.8%) in 2008.  But at the same time, investment-home sales dropped again in 2009 by 15.9%.  According to NAR Chief Economist Lawrence Yun, “The typical vacation-home buyer is making a lifestyle choice, with nine out of 10 saying they intend to use the property for vacations or as a family retreat.” This bodes well for fractional ownership as the product is typically not positioned or sold as an “investment opportunity.”

In 2009 we saw fractional sales numbers that would at first glance contradict our positive prediction for the industry; according to the latest Ragatz report, fractional sales drop by 44% from 2008.  However, upon further analysis it begins to make sense as the drop is likely due to the glut of distressed whole ownership vacation homes on the market.  While the mean vacation home purchase price in 2009 actually rose by an average of $19,000 to $169,000, Yun says “The higher vacation home price may reflect increased sales in higher priced markets, particularly in areas of Florida and California where prices became highly attractive for buyers over the past year.”  According to the NAR, seven out of ten vacation homes purchased in 2009 were detached stand alone houses.  If 70% of all vacation homes sold last year were stand alone and the average sale price was $169,000, this points to highly discounted (distressed) pricing - tough competition for fractional sales teams; even with added benefits of additional services and amenities and an exchange program.

That said, the recent increase in sales of these homes points to a positive trend if you are in the fractional ownership sales industry:  distressed inventory is being cleaned up now and in 2011 and 2012, the price disparity between fractional and whole ownership vacation homes should increase.

2.      Long-term demand looks favorable because there are large numbers of people in the prime years for buying a second home. Currently, 39.2 million people in the United States are ages 50 to 59 - a group that dominated sales in the first part of this decade. An additional 44.8 million people are between 40 and 49, and another 40.7 million are 30 to 39.

There is a growing population of age groups that traditionally purchase second homes, 79.9 million of them as indicated by Dr. Yun. “While economic factors can affect sales from one year to the next, the fundamental demand from these large population groups will remain,” Yun said. “Given that most people become interested in buying a second home in their 40s, the bulge of population approaching middle age should drive the second-home market over the next decade.”

3. The current and severe economic recession has drained large portions of retirement accounts and the decline in home values leaves many with little or no equity for discretionary purchases.  Therefore, practical and responsible ownership alternatives are gaining in popularity.

4. Much of the hesitation for fractional buyers has come from a simple lack of awareness.  Now however, in an attempt to open up target markets and provide feasible alternatives to expensive whole ownership, larger numbers of real estate developers and hospitality brands are promoting fractional real estate products.  As a result, fractional ownership is becoming more main stream to the vacation home buying audience. As more big name flags incorporate fractional ownership, the more credible and comfortable the product becomes - thus easier to buy.

5. The “Green” movement - protecting our planet has become headline news and there is now greater emphasis on the elimination of wasteful practices concerning our natural resources in addition to a growing focus of energy conservation.  Fractional ownership is a very “Green” product, especially if the development is Leed certified.

Request more information on how Pierce Group can help you evaluate whether your project is a fractional fit

We have now launched Clearview Express^TM for those organizations that are already well into their sales efforts and looking to improve their closing percentage.  This system uses smarter Lead Response Management along with technology to save money in marketing outreach and improve the percentage of leads that are engaged, qualified and ultimately closed.  Have a look below or request a personal demo.

It was not long ago when real estate developers chose fractional ownership because the opportunity was there to make more money, a lot more money.  The advertised price per foot was in many cases double what a similar stand alone home was (consultant speak:  the whole ownership multiple was 2.0) and that price was split into 8 or 10 sales per residence, whatever the owner per residence ratio was determined to be.

Now resort developers are choosing fractional for different reasons; a wider target market stemming from a more reasonable price point, a practical and responsible second home decision for those who have learned lessons from “The Great Recession”, a possible savior for unsellable million dollar whole ownership inventory and yes there is still the prospect of stronger revenue if executed properly.

Today the 1.8 or 2.0 whole ownership multiple of 2005 is, for all intents and purposes, history.  While there might be the occasional special circumstance in a destination with little supply and extreme demand, most markets are not impervious to logical concerns from savvy buyers.

So what is the going rate in 2010?  We have seen multiples fall to 1.3 or 1.4, indeed a far cry from 2005 but (drum roll) a positive indicator for the future of fractional ownership real estate.  Now resort developer’s expectations from fractional sales are strong but not outrageous, and price points better represent what we preach, a practical use of our discretionary money and a responsible way to retire.

Fractional real estate pricing is based on the following factors:

• National and local real estate implications
• Specific local market performance
• Supply & Demand
• Competitive environment
• Seasonality implications
• Amenity offerings
• Number of sales that need to be made/ projected sales period

The method in which the average price point and price schedule is determined is more complex than might appear, as indicated by the bullets above, and has nothing to do with how much money needs to be made by the owner or developer.  Fractional real estate pricing should be set by a fractional consultant in cooperation with the real estate owner.

Handling the Objection - Price Justification

Regardless of where the whole ownership multiple ends up, there will no doubt be the occasional buyer with a “beef”, needing justification for the raised price per foot.  If the multiple is set at 1.5 for example, don’t be shocked to hear this objection:  “Your price per foot comes out to $975 and I can go down the street and buy my own home at $650.  You are making a killing!”

This objection is logical when you consider where it’s coming from.  Most prospects are simply not educated on the development, sales and marketing process of fractional real estate - nor should they be.  A properly trained Sales Director’s response should be as follows:  “I understand how it might appear that way at first.  Tell me, which real estate agent are you working with?”

Nine times out of ten the answer will be “I’m not working with an agent.”  From this point forward the escalated price per foot will begin to make sense.  One of the culprits for a raised fractional price per foot is the absence of the general real estate community.  You’re more likely to see Barbara Streisand singing a duet with Quiet Riot than a Realtor® showing a fractional residence.  Thus, fractional developers need to actually market and sell their inventory, just as Streisand markets and sells records - with money.

Here is an overview of the rest of the perpetrators to the fractional price point:

• Sales costs - far greater than a typical real estate development. Depending on what the owner to residence ratio is, fractional developers must make eight or 10 or even 12 times the number of sales than a traditional residential development. We employ sales teams in sales offices, put on evening events, dinners and even special preview visit packages where we pay for the travel expenses if the prospect buys - more money.
• Marketing costs - not even in the same league with a traditional whole ownership community. Real estate agents are not a significant piece of the fractional sales puzzle, so we do not simply throw our product on the MLS and forecast the traditional six percent cost to sell an interest. Our marketing costs can be upwards of 15 to 20% of total revenue for a fractional project. We spend that money on things like advertising, public relations, sponsorships and referral fees.
• Legal and consulting costs - developers know how to subdivide a plot of land and build product but do they know how to develop the appropriate usage plan, install the right exchange program, implement the right rental programs, or register the project correctly with the state? Usually not, so there are additional costs associated with legal and consulting work not often relevant in a traditional residential real estate community.
• Amenities - down the street at the home you could purchase for $550 per foot, does it include a restaurant, spa, tennis courts, swimming pools, a golf course, or a Vintner’s Club for example? The cost to build a resort’s infrastructure is far greater than what it costs to build a standalone home.
• Furnishings - fractional residences are completely furnished down to the wine opener and the blender.

Of course, a fractional sales team should be properly trained to answer this objection without shoving the knife in and twisting.  The points above are most definitely teetering on the edge of overload city for most prospects and could easily induce sales person vomiting at the sales table - nobody wants that!  To avoid deep discussions into developer costs, sales teams should start with this kind of discussion:

• “The price per foot is slightly higher due to these reasons”. “However, take a look at these whole ownership comps in the area at a lower price per foot and consider them as your alternatives.” If the fractional product is priced right (with a 2010 multiple) then this can quickly put an end to the objection because the comps will be exponentially higher.
• “By the way, the annual taxes, upkeep and maintenance associated with a fractional interest are only a smidgen of what they would be down the street.” $10,000 per year is a lot more attractive than $80,000 - especially when typical usage is only 4 weeks.
• “Calculate your price per foot based on what you are paying - the club is designed to allow you as much access as you would typically require in that second home down the street.”

It is of this author’s opinion that the price per foot objection is not even mentioned the majority of the time.  It’s a cramp in the side of the prospect that is largely left unsaid- (in developer speak:  unsold). Most people are simply not confrontational - save New York, New Jersey… definitely Philadelphia - and will end up riding off into the sunset leaving their Sales Executive to wonder what happened.  Furthermore, it’s up to the developer to price the product reasonably and ethically.  If higher sales velocity is the goal then we should not be putting sales teams in a position of defending their price.

As we begin to emerge into the post-recession period, it is my hope that this article is completely forgotten, that price points stay at a practical and responsible level and sales teams can spend more time talking about how close the ski lift is or how far away the angst of real life is.  Simply put, the price of a fractional interest can and should be considered too good to be true.  If we continue to recognize this and stay away from dreams of doubling traditional profits, fractional resort real estate will easily and consistently outsell whole ownership and everybody wins.

It is official:  we’re a dime a dozen.  Every Tom, Dick, and Harry from the timeshare world has now repositioned himself as a “Fractional Consultant”.  It’s common to hear a “fractional professional” tout their “fractional expertise” dating back “thirty years” when the industry wasn’t even technically born until 1991.  The first fractional project was the Dear Valley Club, Steve Dering, Jim Whitteron and Dave Hanna can lay claim to that, but what were all of the other seasoned “professionals” up to… selling timeshare.

Fractional ownership real estate is a practical and responsible decision for the second home buyer and momentum is building on the development side with hundreds of them popping up all over the world.  As a result, the timeshare world has noticed and the consultant category is becoming very… fuzzy.  What’s the trend?  My crystal ball is flashing red right now with big letters that say “Warning”.  The warning ball tells me that these professional timeshare - err fractional - experts will install their old timeshare sales systems into fractional projects and expect to sell $250,000 real estate products by luring vacationers in with a $75 per night trip package and a 90 minute presentation.  It’s already being done and it’s already failing, I’ve seen it personally on multiple occasions.  The result will be more failed projects than necessary and frustrated developers bad mouthing fractional as a failed concept.

There is a battle that needs to be waged and it needs to be done soon.  We at Pierce Group are playing our part by restructuring our company focus entirely.  We will now focus on installing better sales systems, improving closing percentages and reaching our prospective buyers with messages they want to hear.  We preach “spend smarter and engage consumers faster”.  These sales systems are built from a combination of front line experience selling to savvy real estate buyers and research on buying behavior.  Do you think Fortune 500 corporations have an idea of how to best reach new customers?  You bet they do; they spend an enormous amount of money on developing strategies to close their target buyers - just as timeshare did in the 80’s.  The answer for fractional developers is not to simply adapt a timeshare sales strategy used for a completely different target audience; new systems should be implemented - systems designed specifically for upscale, savvy and responsible second home buyers.

We have designed a system based on our experience in sales, not timeshare programs, and we will continue to install it and show results one project at a time.  More information: Clearview Sales System^TM and Clearview Express^TM or Contact Us to request our corporate bio and lets have a conversation.

Eric Pierce

Foresight Costs Less than Hindsight^SM

Did you know that more than 50% of all real estate leads generated are never spoken with by the sales team?  Yes, quite sobering indeed.  The majority of those precious leads that you spend good money generating are never reached.  We have a sales process that can greatly improve that percentage.  Additionally, there are components of our sales system that can add real and quantifiable value to your project’s bottom line by helping you sell faster.  Look through our secure Corporate Presentation and let’s follow up with a conversation about your specific situation.

Eric Pierce

Yes, sales are harder to come by these days but there are ways to improve your odds at a lower cost.  Did you know that out of 100 new leads, your sales team will typically have a live conversation with less than 40 of them?  We can fix that - see the slide show below.

For a phone consultation and price quote Contact Us.

If you’ve been on the front lines during a typical fractional real estate sales process you will concur that there are any number of objections that are consistently fired at the sales team.  Without going through each and every concern, we can safely say they all have one underlying meaning:  “I am uncomfortable with this decision”.  Usually buyer discomfort is related to a lack of understanding and experience with the product which is another way of saying “I am worried about the risk”.  Heck, nervous buyers will find a way to communicate this trepidation through the thread count of the bed sheets if they have to.  So why does dropping the price remain the first knee-jerk reaction to closing prospects?

The answer is this:  price incentives are often a good urgency tool, and creating urgency is commonly confused with eliminating anxiety.   More often than not, if a fractional ownership prospect isn’t pulling the trigger it is not due to price, it’s something deeper than that - perceived risk.  Tackle the risk and price isn’t an issue.

So how do we provide comfort with perceived risk?  Look at developer buyback options; look at methods to provide customers the option to purchase “risk insurance” at closing and consider installing bonus interest opportunities for buying early.  These tools transfer some additional risk to the developer of course, but that’s the name of the game.  Show me a developer who isn’t comfortable taking risk and I’ll show you a future Starbucks barista.  Assuming that the product has been created properly with the essentials in place for a successful Private Residence Club, virtually eliminating buyer risk will drive stronger sales.  A project that sells is one that eliminates risk to the developer as well.

Now for the secret sauce:  use risk mitigation measures to effectively create urgency.  Let’s not forget that if you (the seller) are going to give something away (a buyback plan for example), you must get something in return; this is basic Integrity Selling and the buyer will appreciate it and respond to it.  Pierce Group has a buyback plan that can be used specifically for this instance.  Instead of offering a price discount, offer incentives centered on the buyback; but do it in return for signing the dotted line within a short period of time.  Set aside all of the money that you would have given away in discounts and use it as a personal insurance policy for your buyback plan.

Disclaimer: Don’t bring up risk!  Only use this strategy when it is an issue with the buyer. At this point in the process the sales executive should already have a strong understanding of the buyer’s objection and a good idea of the direction to take if there is hesitation in moving forward.

Create the right product, virtually eliminate the risk and make it easy to buy - As Yoda once said, “urgency these are not, for they create it”… or something like that.

For more on risk mitigation and the Clearview Sales Process^TM visit PierceGroupLLC.com

Foresight Costs Less Than Hindsight^SM

Last week I was working to bring on a new client, I do this often, but this one stands out because it brings a lot of potential.  The developer understands sales, is well funded and is building an unbelievable fractional ownership resort in an unbelievable location so it’s undoubtedly something that Pierce Group needs to be a part of.

I was faced with a problem however, I had assembled many valuable pieces to the fractional sales puzzle including knowledge, experience, expert sales training, and lead generation programs but frankly, developers are sick of hearing that.  They are looking for something quantifiable and a share in the risk, i.e. more than just a promise of sales success.  The former consulting model of large upfront “professional fees” and huge monthly “professional advances” is all but gone unless it can be backed up with a tangible deliverable - either additional revenue sources or a reduction in sales and marketing expenses.

But then it happened.  I stumbled across the key element that I so desperately needed - the tangible deliverable.  It’s the glue that holds all of our sales techniques and programs together while delivering a real, quantifiable deliverable.  It greatly reduces expenses via a shortened sales cycle and far fewer glossy “coffee table” brochures that need to be printed and delivered.  It will generate stronger referral business thus saving even more expenses.

What I am referring to is a long overdue sales accelerator technology that is absolutely ideal for the resort real estate sales business.  Of course it has to be used appropriately or the tangible deliverable will not reach its potential.  So I spent six solid days in my office with a gallon of coffee a day working on the whole puzzle.  This also helped me avoid the H1N1 that my kids came down with so it wasn’t all that bad.  Special shout out to my wife by the way… couldn’t have done it without you babe!

I have finally put together a decent corporate presentation of Pierce Group’s scope of services including our new and improved ClearView Sales System^TM.  The presentation uses the new technology so I’ve killed two birds with one stone, you’ll get a free demo.

ClearView Sales System

Simply put, fractional ownership real estate developers could save thousands… make that hundreds of thousands of dollars by implementing our process.  I welcome developers to reach out and have a conversation.  Whether your project is still on the drawing board or you’re in the middle of a campaign, the process provides real tangible value.   Contact Us to receive our corporate presentation.

Eric M. Pierce

President - Pierce Group, LLC

www.PierceGroupLLC.com

This is volume 1 of several upcoming posts where I will identify other expert opinions that back up my thoughts on fractional ownership and the overall opinion of the industry’s seemingly bright future.

These remarks are made by HVS author Andrew Cohen and included in Gerson Lehrman Group’s article entitled “Resort Real Estate & Recovery Speed: What Comes Back Quickest?”

“There will be resort real estate sales, Cohan says, but certain products in certain price points in certain locales will likely recover their selling strength quicker than the resort real estate market at large.”

“What will come back quicker, according to Cohan?

• Resort real estate markets in drive-to resort markets. (A point made after 9/11 as well, and perhaps true for a while, before life returned to excess normality.) The idea here is that people will seek resorts that don’t require expensive flights to reach and that can be reached more often, which connects to….
• Use: Resort real estate buyers will be more focused on value, especially value through use. Buyers will either want to use the resort property as often as possible or will only want to pay for what they believe will be their typical level of use by buying fractional real estate or by joining private residence clubs
• Preservation of service and amenities: Cohan makes an interesting point when he says that the household that was worth $10MM in the glory days became accustomed to the highest level of service and the highest quality amenities. Now that they’re worth “only” $5MM or $6MM they may not be able to afford a $4MM vacation home any more, but they want the service and amenities they used to know, if someone can deliver them a $2MM home that can somehow be packaged with that higher-level service and amenity package”

Please see the entire article here:   http://www.glgroup.com/News/Resort-Real-Estate–Recovery-Speed–What-Comes-Back-Quickest–43801.html

But first, allow me to expand a bit on Mr. Cohen’s points regarding drive-to resort markets and the demand for flexible second home usage.

If you are a developer of a residential resort community in a drive-to destination make sure you offer a usage plan that provides for the flexible usage that Mr. Cohen discusses.  Nobody wants to purchase a second home within two, three, four or even five hours of their primary residence and be told that they can only use it according to a rotating schedule or pre-assigned weeks.

Rotating schedules might have their place in a destination like Aruba, but not where the last minute getaway is so valuable.  This is especially true if the resort is upscale and the price is in excess of $100,000 for each fractional interest.  In this business, flexibility is synonymous with luxury.

In traditional fractional ownership and Private Residence Club sales, success depends on the creation and delivery of a far more complex product; one that goes well beyond marble countertops and stainless steel appliances.  A key component to the fractional offering is accessibility among other things.  Thus, the reservation system is critical to the success of the project as prospective buyers will not take the leap - especially in this economy - if they do not see an opportunity to use their second home in a flexible manner.

Warning: please don’t take this too far and create a “flexible” or “fair” reservation system that only an MIT grad can understand; you will certainly be creating a sales landmine.  Unfortunately this is way too common; in fact I just saw it last week in Mexico.  I was impressed by the project but for the life of me could not understand what appeared to be the most complex formula since the credit default swap debacle.  Folks, if yours truly can’t understand the reservation system… that’s bad.  I spend most of my day on this stuff, what is John Q. Public going to think?

For more on Pierce Group’s services and properly creating your own reservation system please click here:  http://www.piercegroupllc.com/core-services.html

Eric Pierce

Foresight Costs Less Than Hindsight^SM

10 Most Common Mistakes in Fractional Ownership Development

Multi-Use Resort Residential Sales - Worth Doing If Done Right

Selling Fractional Ownership – To Vomit or Not To Vomit

Fractional Ownership: Acceptable Conspicuous Consumption