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Feature: The Fractional Market

William Kissel

January 1, 2004

Nevertheless, like any real estate investment, there are gambles. “In the time-share and fractional real estate business, they allocate use,” explains Rob McGrath, founder and chief executive of Private Retreats, a five-year-old vacation club that recently went into partnership with Abercrombie & Kent to expand its services to include 30 different adventure vacations, from African safaris to cruises in Antarctica. “They sell four or five weeks a year to their members, and when their members call and the home is available, they can have it. If someone else has reserved it, they can’t have it. Of course, what happens is that during the summer and holidays they have 10 requests and they can’t satisfy all of them. If it was my own home, I could use it whenever I want. What they don’t tell you is that you get to use it on New Year’s one in every 10 years. In the end, you get what you pay for in terms of services. But you don’t get ultimate flexibility. We obviously believe that model is flawed.”

Among the other problems is the issue of personalization and privacy. Most fractional properties allow you to store personal items that are set up upon your return. “But you give up a certain amount of personal decorating you might have done,” says McGrath. “And with fractionals you’re in a condominium hotel. You have to walk past the concierge and down a public hallway to get to your home. I don’t think that’s why people buy second homes most of the time. I think people buy because of the separate entrances and private access and private pools and private barbecue areas. There isn’t a concierge sitting there when you walk out to get your newspaper.”

Both Exclusive Resorts and Mirabella Estates agree they are neither time-shares nor fractionals but have similar operating methods, albeit without the tax advantages. Instead of selling a brand name or singular destination, they provide members with the option of spending their vacations in a wide variety of deluxe homes. Deposits and annual fees are based on two-, three- and four-week vacations allocated on a reservation basis. If you want more time in a particular residence, you are charged a nominal per diem fee. By comparison, Private Retreats, with a maximum capacity of 400 members, collects only half the $16,000 annual dues of Exclusive Resorts’ platinum club members but charges $150 per night for each of its homes. “Rather than build all the cost into dues, we’ve split it out between dues and use fees,” explains McGrath. “The rationale is that the guy who uses a home only five days shouldn’t have to pay the same as the guy who uses it 100 days or more.”  (Click image to enlarge)