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Luxury Real Estate 101

It's the hottest trend in the high-end housing market today. But what are fractionals anyway, and how are they changing the way we buy property? Eric Levin explains.

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In his career as a pilot and an airline accident investigator, Billy Minkoff, 55, has logged more than 13 million miles flying all over the world, from Moscow to Tokyo. But for years he and his wife, Elizabeth, 52, a lawyer for a Nashville health care company, found themselves returning to one place—the venerable Greenbrier resort in White Sulphur Springs, West Virginia. Forget Paris or Barcelona: Like every American president since Woodrow Wilson (the resort has long been a weekend getaway for the residents of 1600 Pennsylvania Avenue), the Minkoffs fell hard for The Greenbrier's 6,500-acre stream-fed valley, its stunning variety of oaks, maples, and hickories, its view of the surrounding Allegheny Mountains, and its three meticulous golf courses. "I've stayed in all the leading hotels in the world, and this place is way up there," Minkoff says.

So when The Greenbrier recently decided to partner with a development company to create the amenity-rich Sporting Club, the resort's first private community, the Minkoffs signed on at once, buying a 1.9-acre lot on Greenbrier's storied Old White Course. "It's like a magic curtain for us, driving through that gate," Billy Minkoff says.

The Minkoffs aren't alone. Since it began accepting members in 2000, the Greenbrier Sporting Club, which officially opened in May 2004, has sold more than half of its 500 homesites at prices ranging from $400,000 to $2.25 million. Owners have access to all the resort's facilities, as well as a host of services and facilities unavailable to resort guests.

The Greenbrier Sporting Club project is a prime example of one of the hottest trends in real estate today: fractional or full ownership of luxury residences at high-end resorts. (A wholly owned property is just that—a fully owned house or apartment bought from the sponsoring resort or development company. In fractionals, ownership of a property is shared. Each share, typically expressed as a seventh to a twelfth interest, is worth a certain number of days in residence per year. For more details, see "Levels of the Game.")

In the past five years, these properties have not only invigorated the struggling hotel industry but they have also proven a boon to buyers, whose purchases afford them the privacy of a vacation home with the services of a top resort. At the highest end of resort real estate are wholly owned residences, like those at the Greenbrier Sporting Club. Dolan, Pollak & Schram, the company that generated The Greenbrier's club, operates equally exclusive enclaves in Savannah, the Bahamas, and the Turks and Caicos islands. Leading hotel chains such as the Four Seasons and Ritz-Carlton also offer sole ownerships in their top resorts and hotels.

Living in a luxury hotel or resort used to be a nearly unattainable privilege, an option only for the very rich and very famous: Frank Lloyd Wright hung his hat at The Plaza; the Duke and Duchess of Windsor kept a suite at the Waldorf Towers. During the nineties, however, resort and hotel living became more accessible—and quite popular. Today, as people's lives grow more hectic, fractionals or wholly owned resort residences offer an attractive combination of comfort andconvenience. Owners are able to bid adieu to the less appealing aspects of home ownership, from mowing the lawn to repairing the hot-water heater. As one resort industry executive puts it, "Second homes are second jobs."

That was certainly the case for Virginia Willard and Cy Holden, nutrition and health food consultants in their early fifties who had wearied of patching, painting, and plumbing their Colorado ski house. "We got tired of the headaches of replacing roofs, painting, fixing leaks, all that stuff," Holden says. "We were able to make a tidy profit on the sale [of our house], and we wanted to reinvest." Instead of a conventional property, the couple decided in 2002 to buy a share of a two-bedroom furnished unit at the Four Seasons Residence Club in Jackson Hole for $380,000, with a $950 monthly maintenance fee. "We looked at properties for two or three million dollars, but we thought, 'Why tie up all that money?' " Holden says. Once he and Willard realized that their one-seventh fractional would be exchangeable for stays in other Four Seasons residence clubs, they were sold. "We saw that we'd also have the option of going to several different places, so it was a very easy decision," Willard says. For them, the new residence means that their second house is truly a refuge—not a chore. "We're fitness buffs, and the spa is world-class," Holden says. "When we go down to ski, they hand you your boots and skis. At the end of the day, they put everything away and you just get on the elevator and go upstairs. I've never skied like that in my life. It's just fantastic."

Indeed, for all the popularity of full-ownership deals, the most significant surge in resort real estate has been in fractionals, the tier just below sole ownerships. A recent study by Ragatz Associates, a resort industry research firm, reported that worldwide sales of fractional interests by developers grew about 30 percent between 2002 and 2003, reaching a high of $513 million last year.

According to the study, as of this March, 151 resorts were offering fractionals as an option, mostly in the United States but with a few in Canada, Mexico, and the Caribbean. The high end of the fractionals market, in which prices run from $500 to $1,000 or more per square foot, showed particularly strong growth in recent years; in 1996 only six resorts offered high-end fractionals. In 2003, 55 did.

The fractional market has boomed because it solves a problem for both developers and vacationers. "Despite the ups and downs of the stock market, there is more wealth spread among people of the right age to buy second or third homes," explains Jennifer Urquhart, marketing director for PRM Realty Group, developer of the Maluhia at Wailea, a resort community on Maui. (Maluhia members enjoy benefits at five surrounding luxury hotels, including the Grand Wailea Resort & Spa and the Four Seasons Resort Maui at Wailea.) "Hotels and resorts in general are having to spend a lot more money to satisfy the expectations of the high-end customer. It used to be a big deal if you got a bathrobe and shampoo. Now there's marble everywhere, plus spas, concierges, you name it.

"As a result," she continues, "profit margins are so narrow that resorts look for a return on investment by condo'ing part of the hotel. In Hawaii there are hotels that were built solely to supply buyers with real estate; now those hotels supply fine dining and amenities to the home owners. But they still run as hotels. The Four Seasons Hualalai, on the Big Island [which maintains a residence community on the hotel grounds], is a perfect example of that. It's a nice symbiotic relationship."

In the last few years, luxury hotel chains like the Four Seasons and Ritz-Carlton have embraced these "mixed-use" models in a big way. By applying their rigorous standards of quality and service, they have helped elevate the concept of fractionals, raising it above its origins in the downscale and sometimes disreputable time-share business of the seventies. Four Seasons debuted its first residence club in 1997 at the Aviara resort in Carlsbad, California. Clubs at the Troon North golf resort in Scottsdale, Arizona, and Jackson Hole, Wyoming, followed in 2000 and 2003, respectively. The resort that the company opened this year on Costa Rica's Peninsula Papagayo includes both a residence club and wholly owned luxury villas. A club in Punta Mita, Mexico, is also on the drawing board.

Ritz-Carlton, which is owned by Marriott, responded in 2001 with its first residence club, the Ritz-Carlton Club, Aspen Highlands, Colorado. Now it owns three more, in Bachelor Gulch, Colorado; Jupiter, Florida; and St. Thomas, Virgin Islands. Like the Four Seasons, Ritz-Carlton allows owners to exchange time for stays in other clubs in the system, an attractive option for peripatetic vacationers.

Dr. Jeffrey Yessenow, 53, a Chicago-area obstetrician, and his wife, Marla, were honeymooning in St. Thomas in 1999 when they attended a presentation on the forthcoming Ritz-Carlton Club, which opened last year. They bought an eighth interest in a three-bedroom condo. The Yessenows were so delighted with their experience that they bought another eighth share in the Ritz-Carlton Golf Club & Spa in Jupiter.

In the five years since the couple's initial purchase, share prices increased from $95,000 to $250,000 for the same size unit. Although Jeffrey Yessenow sees the jump as more of a sign that his share has doubled in value than as a price hike, it's still unknown whether high-end fractionals can really be considered appreciating assets. Like wholly owned properties, most fractionals are yours for life and can even be passed on to your heirs, just like any other deeded property. But unlike a wholly owned property—which is likely to increase in value—fractionals reside in that liminal space between traditional real estate and time-shares, which are known not to appreciate. Resale policies vary, but in general, shareholders can sell their stake through the resort company's brokers. This usually means that the new shareholder will be purchasing not only the block of time but also the privileges of ownership that accompany it. If the fractional owner chooses to sell his share independently, however, the buyer may not be extended those same amenities. Still, many buyers are willing to take this risk; for people with limited free time, fractionals offer conveniences that transcend most of their concerns about devaluation of the property.

Yet, today, the most novel idea in vacation travel involves membership. For a onetime fee of $375,000 (the price is 80 percent refundable on termination), Exclusive Resorts "gives you access to our entire portfolio of properties," says president Brent Handler. "Unlike the rest of the industry, we have a policy of guaranteed availability without a set schedule. If you let us know ninety days in advance, you can be wherever you want to be."

This privately held company's portfolio includes more than 200 furnished residences, each with full concierge service and a median value of around $2.5 million—and all are strategically located in destinations such as Kohala Coast in Hawaii, Scottsdale, Los Cabos in Mexico, Telluride, Paris, and Great Exuma island. The annual fee for 30 to 60 days of usage ranges from $15,000 to $25,000, which also includes concierge service. As with fractionals, space-available booking is permitted. The company has targeted families and people with a desire to vacation in various places as their primary customers. While a number of members already own second homes, many turn to Exclusive Resorts to satisfy their wanderlust.

Amy and Victor Mitchell of Lone Tree, Colorado, bought the 60-day plan in early 2003. Victor, the former CEO of a wireless telecommunications firm, and his wife are in their mid-thirties and have three children under the age of ten. In their first year of membership, they took trips to Hawaii; Los Cabos; Beaver Creek, Colorado; London; New York; and San Francisco.

"You have to travel to get your money's worth," Amy Mitchell says. "And we do, so it's definitely our cup of tea. There's plenty of room, there are things for the children to do, and the concierge service is great." For the Mitchells, the convenience alone is worth the price.

But as important as convenience is for so many busy travelers (and as happy as the Mitchells, the Yessenows, and Virginia Willard and Cy Holden are with their new residences), it's worth remembering that fractionals are not the ideal solution for every home buyer. For one thing, the question of whether these residences will prove to be wise investments remains unanswered. In fact, for reasons relating to securities laws, resort and industry salespeople try to avoid terms like investment, profit, and appreciation. Instead, fractionals are marketed as "lifestyle enhancements," which may actually be the best way to consider them when weighing their benefits. After all, the fractional market has been a success not only because it allows people to secure their own space in coveted locations but also because it offers them three things we all crave yet rarely obtain in our everyday lives: luxury, indulgence, and service. For people who want an escape, a fractional may prove irresistible—and, at least in quality-of-life concerns, the best purchase they make.

And the resort industry is ready to give it all to this new class of buyer. "[These people] are well traveled, they know what they like, they have excellent taste, they know what good service is, and they're willing to pay for it," says Peter Pollak of Dolan, Pollak & Schram. "I don't know how many of them there are, but I know there are enough to keep us busy."


TIME-SHARE Begun in Europe and popularized in the United States in the eighties, time-sharing originally meant buying the right to use a specific unit within a specific resort for a specific length of time (usually one week) during the same calendar dates each year. High-pressure sales tactics and poor management gave time-shares a bad name, but in the mid-eighties companies like Marriott began reinventing the concept by boosting quality, flexibility, and buyer confidence.

HIGH-END FRACTIONAL This is often described as a time-share on steroids. In fractionals you get deeded ownership of a particular size and type of unit for a certain number of days per year, usually 30 to 60. You pay more, but you also get more: first-class properties, furnishings, and service, with greater flexibility of scheduling and exchange opportunities.

WHOLLY OWNED RESIDENCE It may be a luxury apartment in a metropolitan hotel, or a villa or townhouse on the grounds of a five-star resort. It may be land—on which you might build a house of an approved type—in a private community adjoining a resort. Whichever it is, you can live in it full-time, or come and go as you please. After all, it's all yours.

PRIVATE RESIDENCE CLUB This term is applied to various residence arrangements. High-end fractional ownership programs—such as those run by Four Seasons and Ritz-Carlton—are considered private residence clubs. But so are novel nonequity concepts, like Exclusive Resorts and Abercrombie & Kent Destination Clubs. In these, members pay a onetime initiation charge, plus annual fees, to use any property on the club's far-flung roster of luxury homes and resort properties for varying lengths of time. The clubs provide concierge services at each residence.


1 HOW IS THE FRACTION DEFINED? The number of days you get is represented as a fraction of the year, typically a seventh or an eighth. Technically, for example, an eighth of a year is 46 days, but in practice it can be significantly fewer. The Ritz-Carlton Club in Jupiter, Florida, for example, sells eighth interests, which are defined as 35 days each. The Four Seasons Residence Club in Jackson Hole, on the other hand, will sell sevenths, which also turn out to be 35 days. Each company bases its numbers on several factors, among them seasonal demand and members' average length of stay.

2 WHAT FORM OF OWNERSHIP ARE YOU GETTING? In the United States, fractional ownership is most often conveyed with a fee-simple deed in perpetuity. In some cases, what's offered is a lease or a right-to-use agreement. This is typical when the land is in a country or region that restricts property ownership by non-citizens, as does the United Kingdom. Case in point: All the land in the exclusive Mayfair district of London is officially owned by the Estate of the Duke of Westminster. Therefore, if you buy a unit at the new American-run luxury hotel there, 47 Park Street, you get not a deed but a lease, which expires at midnight on December 31, 2049. Why? Because the length of a lease in London is set, and in this particular case the lease was 50 years; the clock on the property began ticking when the developers leased it in 2000.

3 WHAT DOES THE ANNUAL MAINTENANCE FEE COVER? As with condominium fees, maintenance fees for fractionals generally cover taxes, insurance, utilities, housekeeping, landscaping, and upkeep, though specifics vary from place to place. Ordinarily, the fee also includes access to basic resort facilities (spa, pools, restaurants). Check how many people the hotel or resort dedicates to "ownership services." This is concierge service, a fundamental in high-end ownership—it means there is a person to book theater reservations or lift tickets for you, and to make sure your refrigerator is well stocked by the time you get there.

4 HOW MUCH DOES THE FURNISHING PACKAGE COST? Because fractional units have to be interchangeable with other units of the same size or shape, they come furnished as part of the purchase price. When you buy a wholly owned residence, though, you have a choice. If there's a rental program and you want to earn income from your unit, you'll probably have to buy the furnishing package. Some people who have no intention of renting out their home purchase it simply for convenience' sake.

5 WHAT ARE THE EXCHANGE OPTIONS? If your main interest is destination hopping, a residence club like Exclusive Resorts may serve you best. If you mostly want to nest in a favorite spot, vacationing elsewhere occasionally, a high-end fractional from a multiproperty company such as the Four Seasons or Ritz-Carlton may offer the best of both worlds. You can exchange a portion of your time at your residence for time at another residence club in the system.

6 HOW IS TIME ALLOTTED? In fractional ownership, the company typically allots you a certain number of days each year in peak seasons (mountain resorts usually have a peak season in summer as well as in winter), with the remainder in off-season or in so-called shoulder seasons. The owner can pick the exact dates. The weeks in highest demand, such as Christmas and spring break, are often assigned years in advance on a rotating basis—that way, everyone eventually gets the choicest dates. Swaps are possible.

7 HOW FAR IN ADVANCE DO YOU HAVE TO RESERVE? The reservation process varies from company to company and can be complicated. Make sure all the rules and procedures are explained up front so you will end up getting dates that work best for you.

8 CAN YOU STAY MORE DAYS THAN YOU'RE ALLOTTED? Most fractional ownership programs let you book additional time on a "space available" basis. You pay what's termed a housekeeping charge—typically $100 a night, although the fee varies depending on company and location. This allows you to make last-minute reservations. (There may be limits on how much extra time you can book.)

9 WILL YOUR PERSONAL GOODS BE STORED? Part of what makes high-end fractionals high-end are the personal touches: Management will hang your pictures on the wall before you arrive and put your golf clubs in the closet, your ski clothes in the drawers, and your heirloom rocker by the fireplace. These companies want to accommodate you, but there are limits—don't expect to store roomfuls of your belongings. Be sure to ask how much is too much.

10 WHAT ARE THE RULES ON RESALE? Should you decide to sell your unit yourself, rather than going through the company's brokers, the buyer might not be entitled to exchange rights and other privileges—make sure to check.



LOCATION Slopeside in Teton Village
FRACTION SIZE A fourteenth share (18 days)
PRICES Two bedrooms, 1,720 square feet, $180,000; three bedrooms, 2,240 square feet, $225,000
ANNUAL MAINTENANCE Two bedrooms, $8,000; three bedrooms, $10,000
SELLING POINTS In addition to an outdoor year-round heated pool, there are also two golf courses.

LOCATION At the base of the Aspen Highlands' ski areas
FRACTION SIZE A twelfth share (28 days)
PRICES Two bedrooms, 1,350 square feet, $180,000; three-bedroom penthouse, 2,100 square feet, $510,000
ANNUAL MAINTENANCE Two bedrooms, $8,800; three bedrooms, $9,700
SELLING POINTS An outdoor pool heated year-round and bathrooms with heated tile floors. In the summer, there's golf, fishing, kayaking, and hot-air ballooning.


LOCATION A 30-acre oceanside bluff
PRICES These residences are wholly owned, not fractional. The 14 beach-view villas have already been sold. Currently available: 14 ocean-estate lots, from 12,000 to 15,000 square feet, ranging from $4.5 to $6.6 million.
SELLING POINTS Along with a full-time concierge, there's also a spa, three restaurants, and private beach access.

LOCATION On the hillside just above the top-rated Manele Bay Hotel
PRICES Residences are wholly owned, not fractional. Two bedrooms, 1,564 square feet, $1.4 million; three bedrooms, 3,385 square feet, $2.5 million. Also available: homesites ranging from 52,228 square feet ($950,000) to 2.5 acres ($15 million).
SELLING POINTS The 141-square-mile Lanai is the least developed Hawaiian island, with a population of 2,800. If you like cooler temperatures and mountain scenery, the residences at Koele Resort (Manele Bay's up-country cousin) are just as posh as Manele's.

LOCATION On the beach at Great Bay, beside the Ritz-Carlton St. Thomas resort
FRACTION SIZE A twelfth share (21 days)
PRICES Two bedrooms, 1,625 square feet, $136,000; three bedrooms, 1,910 square feet, $194,000
ANNUAL MAINTENANCE Two bedrooms, $7,400; three bedrooms, $8,700
SELLING POINTS A beach grill and bar, a spa, and parasailing. In February and March you can watch migrating humpback whales from the 14th tee of the nearby Mahogany Run course.


LOCATION A renovated seven-story townhouse in the heart of Mayfair, built in 1926 as a home for the first Baron Milford
PRICES One bedroom, 175 square feet, $175,000; deluxe two bedrooms, 330 square feet, $295,000. Membership confers rights until 2050.
SELLING POINTS Concierge, twice-daily maid service, and in-house florist; residents can exchange privileges with Marriott Hotels and Vacation Clubs as well as Ritz-Carlton Clubs.

LOCATION 155 W. 66th St., around the corner from Lincoln Center
FRACTION SIZE An eighth share (45 days)
PRICES One-bedroom suite, 725 square feet, $161,000; three-bedroom suite, 1,150 square feet, $282,000
SELLING POINTS Members have access to the on-premises Reebok Sports Club/NY, whose facilities include a climbing wall, rooftop inline skating, and regulation NBA-size hardwood basketball courts.


LOCATION A 27-acre landscaped enclave of 86 cottages and 24 homes surrounded by vineyards
PRICES Wholly owned homes with three bedrooms, $1.2-$1.5 million
SELLING POINTS The first resort in the Carneros region, the inn opened in 2003. The homes have slate floors, outdoor showers, and observation towers. Guests and owners can eat in a private dining room offering regional cuisine and wines.

LOCATION Nestled in a stream-fed valley amid the 6,500-acre Greenbrier resort
PRICES 500 homesites, from half an acre ($400,000) to ten acres ($2 million). Architecture must be approved by a review board. Onetime equity membership for the Sporting Club, $110,000.
SELLING POINTS Three golf courses, including one for members only. There are exclusive dining facilities and a spa for members, who may use all of the hotel's facilities as well.


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