Co-ownership is a common means for a group of individuals to acquire an expensive asset like a home, plane, or yacht. Investors own a percentage share of the asset and share financial responsibility for its carrying costs, maintenance, and use expenses.
Shared ownership in residential real estate can be broken down into 3 models: fractional ownership, destination clubs, and private residence clubs. The shared ownership industry averaged $303 million annually in the past decade across 319 projects according to Ragatz Associates, a leading real estate market research firm. They reported sales volumes in 2018-2019 were $40 million for fractional interest projects (eight percent), $287 million for destination clubs (61 percent), and $144 million for private residence clubs (31 percent).
Fractional sales are typically offered by resort communities who operate affiliated homes as hotel-like accommodations or investment companies selling a percentage of a single property. In each case, investors make a one-time purchase of a ‘share’ of a specific property. Investors are responsible for ongoing maintenance and upkeep costs for the property and may have some flexibility in when they schedule their yearly visit. While an investor can typically sell his or her fractional share without undue restriction, fractional shares may not have any deeded equity. Thus, the sales price of the share is set by the management company and may not reflect the value or appreciation of the property.
Destination Clubs, while classified as shared ownership, are more accurately ‘shared use’ properties. Members invest in a portfolio of private residences and resort properties that are exclusively available to club members, but owned and operated by a management company. Members pay an average of $30,000 for an initiation fee, annual dues ranging from $2,500 to $10,000, and below market daily rates, averaging $1200 per night, for their stays. An investor has no equity, ownership, or title to any property, but also no liability for carry or maintenance costs. Destination Clubs are typically easy to exit, with varying terms on what portion, if any, of the initiation fee may be returned. In context, these types of ‘investments’ should be seen as a pre-purchase of vacations.
Private Residence Clubs are usually operated by hospitality brands and real estate investment companies in luxury resort communities and have access to the amenities and services of the resort. In most cases, investors make a one-time investment that comes with an allotment of points or credits they can use to stay in a portfolio of resort properties each year. Investors share in the operating expenses by paying annual dues, while the operators manage the properties and provide service for owners. In the case of investment companies, when the portfolio is liquidated, shareholders or partners receive a pro rata share of the proceeds.
Laurian Club falls into the Private Residence Club category. The investment company, Laurian Holdings, is what’s known as a real estate syndicate. Real estate syndication is the term for the pooling of funds from multiple partners to purchase assets. Syndication deals are organized by a General Partner who manages the investment to provide a return for the Investors (Limited Partners).
As partners in the company, investors own a share of all of the properties purchased by the company. They contribute their share of operations expenses and may use the properties whenever they want, based on availability. Partners can earn income from company revenue streams and sell their partnership shares at current market rates. Properties are managed and serviced by the Laurian Club, providing an effortless ownership experience.
To learn more about the benefits of real estate syndication, read ‘What is a Real Estate Syndicate?‘.