Fractional Industry Wrestles with Economic Times at Industry Summit

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(MIAMI, FL) -- After two years of slumping sales, fractional executives this week called for a more aggressive approach to marketing shared-ownership plans to wary second home buyers.

"The consumer is still in a recessionary mindset," said Piers Brown, founder of Fractional Life, which sponsored the Fractional Summit, an industry conference in Miami this week.

"We need to reassess our outlook and how we energize consumers in exceptional times," Brown said.

More than one speaker addressed the need for more targeted marketing, with a tighter focus on meeting the needs of the fractional buyer.

"We can't cut out way to profitability," said Randy Burgess, executive v.p. of Peter Kempf International. "We have to sell our way out of the mess we're in."

Sales for fractionals in North America fell to $860 million in 2009, down from $2.3 billion in 2007, according to Ragatz Associates. Numbers for 2010 will likely slip even further, predicted Sarah Rezak of Rezak Resort Consulting. She doesn't expect shared-ownership sales to grow until 2012.

"Still I believe this is good news," Rezak said. "We can weather the storm." Past success "suggests there is a market for the product if the economy is good," she said.

In general, the mood was upbeat at the conference, the first in the U.S. for U.K.-based Fractional Life. About 175 people registered for the event, primarily developers and marketing and sales executives looking for ways to grow the shared-ownership market.

Peter Kempf, one of the event's sponsors, acknowledged he was a "little concerned" about the event's prospects, but came away pleased with the turnout and the level of discussion.

"People are encouraged that there appears to be life in the market," said Kempf, chief executive of Peter Kempf International.

August was the biggest sales month to date for Palazzo Tournabuoni, a private residence club in a 15th century Medici palace in Florence, said Byrne Murphy of Kitebrook Partners, which developed the project. Buyers came from Russia, India and the Middle East, he said.

Going against the tide, the project created a sense of urgency by announcing price increases, Murphy said. (An eighth share of a unit in the Palazzo costs between 230,000 euro and 575,000 euro.) They've also expanded their marketing to non-traditional markets, such as China and Holland.

In the past, 80 percent of fractionals were new developments; today most are conversions from hotel-condos or full-ownership schemes, said Scott Ritter, v.p. of Dahlgreen, Duck and Associates. Developers often see fractionals as a way to attract a more economic consumer without dramatically discounting their properties.

"We're hearing from people who two years ago would never have listened to us," Kempf said.

The Registry Collection, a luxury exchange program, continues to grow its roster of properties. Twenty-four were added in 2009, giving it a total of more than175 resorts around the world.

"The big value is that we can give [developers] these bodies [they] can sell to," said Gregg Anderson, global vice president of the Registry Collection.

Exclusive Resorts, the luxury destination club owned by AOL founder Steve Case, is reacting to the market by focusing on current members and allowing news members up to two years to pay their initial fees, senior vice president Adam Wegner says.

"We have to make sure [existing customers] are loving it," Wegner said. The club has about 3,500 members, who might pay $240,000 for a 20 day package, plus a $20,000 a year membership fee, to use the club's property.

Like others at the conference, he applauded the constructive tone of the event's discussions, which included panels with actual owners.

"Any time in today's economy you're getting people taking about opportunity and growth it's good," Wegner said.

Consumers remain wary of fractional and other shared-ownership packages, executives acknowledged. Many consumers still don't know even the basics of the plans, they said.

"It's up to us to drive the market's future," Brown said.

Marketers are keenly aware there is little margin of error in today's market. Every level of service must be transparent and efficient to overcome resistance and build trust, speakers emphasized over and over again.

"There is no tolerance for little mistakes," said Chad Barker of Barker and Associates.

See related REAL ESTATE CHANNEL post:

• Downtown Miami to Host 'Fractional Summit USA' Event in Early September

 

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