Ragatz Associates’, a leading real estate market research firm, has released their 21st annual survey of the fractional interest industry in North America, including the United States, Canada, Mexico and the Caribbean. The report describes the industry’s performance in 2020 from projects in active sales, including sales volume, prices, product characteristics, comparisons with previous years, etc. and is recognized as the most comprehensive survey of the industry available.
The company provided this summary of the report:
This document is an Executive Summary of a larger survey conducted by Ragatz Associates of the shared-ownership resort real estate industry in North America as of March 2019. Included in this overall sector of the resort real estate industry are two components: fractional interest projects and private residence clubs. For the first time in our 20 years of conducting the survey, destination clubs are not included. This is because information received from the few remaining clubs has been questionable in terms of accuracy, as well as limited in scope.
Fractional interest projects and private residence clubs are similar, in that both typically sell deeded ownership in shares of vacation homes, ranging from a 1/21 share with two weeks of annual use to a 1/4 share with three months of annual use. However, the two components vary in terms of price, quality of product and degree of services and amenities. Ragatz Associates simply assumes that product selling for less than $1,000 per square foot falls into the fractional interest category, and product selling for more than $1,000 per square foot falls into the private residence club category.
A destination club typically sells 30-year memberships on a non-equity basis into a wide network of vacation homes in multiple locations. Some clubs are equity-based, however. The concept is further characterized by a refundability policy when members leave the club. And, some are rental clubs. Again, they are not included in this year’s survey.
The survey represents our 20h annual edition. Once again, it is thought to be the most thorough and comprehensive survey conducted of the industry.
Size of the Industry
Some 319 fractional interest (FI) projects and private residence clubs (PRC) were identified in the survey. Of the 319 developments, 42 actually made some sales in 2019. The 42 FI and PRC projects are the primary focus of the survey. Included in the 319 developments are 67 percent in the United States, 17 percent in Canada, nine percent in the Caribbean and seven percent in Mexico. The two states of Colorado and California contain 19 percent of all developments. Of the 42 active developments, 52 percent are fractional interest projects and 48 percent are private residence clubs. Most of the 277 inactive developments are older, sold-out fractional interest projects. There were 50 active projects making sales in 2018. Between 2018 and 2019 there were three new projects, two projects re-starting sales from the previous year, nine projects attaining sell-out, and four stopping sales.
It is estimated that total sales volume in the fractional interest and private residence club industry in 2019 was about $198 million. This amount includes new closed sales, presales, and in house resales. When looking at the two individual components, sales volumes were $31 million for fractional interest projects (16 percent) and $167 million for private residence clubs (84 percent). Some 52 percent of the 42 active projects were fractional interests, but they generated only 16 percent of the total sales volume.
Sales volume at $198 million in 2019 was the highest in the past three years, up from $184 million in 2018 and $175 million in 2017. However, the annual sales volume over the last 10 years has been fairly consistent, ranging from $175 million in 2017 to $349 million in 2012, and averaging $211 million. In 2019, fractional interest projects decreased by $9 million (23 percent), and private residence clubs increased by $23 million (16 percent). Sales volume was down by 88 percent (-$1.5 billion) since the peak year of 2007.
In 2019, the average annual sales volume in the 42 active projects was $1.4 million for fractional interest projects and $8.4 million for private residence clubs. However, if excluding the top four private residence clubs, the average for that component would decline to $4.5 million. If excluding the top four selling fractional interest projects, the average for that component would drop to $568,900. Of the total 42 active projects, 14 percent had sales over $10 million, while 45 percent had sales of less than $1 million.
Several critical factors once again were in play in 2019 to cause stagnation in the sales performance of the shared-ownership industry.
- uncertainty about the country’s long-term economic stability
- almost complete lack of consumer financing
- decrease in primary home equity funds for purchasers who previously paid cash
- lack of marketing funds Ragatz Associates Executive Summary: The Shared Ownership Resort Real Estate Industry in North America 2020 
- an excess supply of whole-ownership vacation homes on the market, with decreasing prices
- increasing competition from vacation home rentals and rental clubs
Prices in the shared-ownership industry range widely. For fractional interest projects, selected average prices include $161,500 per share, $22,200 per week (when dis-aggregating shares to an individual weekly basis), and $535 per square foot. Among private residence clubs, these averages are $248,000 per share, $63,475 per week, and $1,950 per square foot. Per week and per square foot prices tend to decrease as the size of the unit and share increase. In comparison with 2018, average prices increased by $5,925 per share (three percent), $6,975 per week (17 percent), and $80 per square foot (six percent). When compared to the peak year of 2007, per share prices have decreased by 19 percent, but per week prices have increased by one percent and per square foot prices by 19 percent. Again, all numbers are skewed by the small sample sizes.
Per square foot prices vary significantly by country, e.g., from $475 in Canada, to $1,250 in the Caribbean, to $1,375 in Mexico, to $1,525 in the United States. They also are higher in ski communities and at developments offered by branded hotel companies.
Annual maintenance fees average $9,375 per share, ranging from $6,850 among fractional interest projects to $10,975 among private residence clubs. On a per week basis, such averages are $1,025 and $2,300, respectively.
Operating costs (including marketing, sales and general administration) were about the same in 2019 compared to previous years, at about 15 to 20 percent of the overall sales volume. Product costs were about 50 to 55 percent.
Upon completion, the average development will contain 26 units. Some 66 percent of the units are either two-bedrooms (36 percent) or three-bedrooms (30 percent). Among all units, the average size is 1,635 square feet.
There are at least nine different sizes of shares being sold. Most frequent sizes for fractional interest projects are in the 1/10 to 1/8 range (58 percent). For private residence clubs they also are in the 1/10 to 1/8 range (62 percent). In efforts to have lower prices in accord with declining market conditions, there was again a tendency in 2019 (as in recent years) to have smaller shares, fewer bedrooms and smaller floor areas.
On-site amenities and services are extensive in the industry, especially at the private residence club level. However, there was a trend in 2019 (as in recent years) to have fewer on-site services in order to conserve on annual dues. At the same time, there was a trend to provide more owner benefits such as rental and resale programs, and external exchange.
It is still felt that the shared-ownership components will rebound in the future. Reasons include being a concept that is based on: (1) personal use rather than speculation; (2) being able to purchase only the amount of time that have vacations to use and discretionary income to spend on; (3) lowering household spending habits and capabilities; (4) being hassle-free, i.e., “show up and enjoy;” and (5) the opportunity for flexibility and variety of use due to the external exchange process.
Based on 45 years of experience in the resort real estate industry, we expect the shared ownership industry to once again be on a growth track as the national economy further improves. Our consumer research suggests the decline in the industry’s sales performance since the last quarter of 2007 has been more due to external factors such as the economy and lack of financing, and less due to lack of consumer interest in the concept.
The complete report is available for purchase from Ragatz Associates at: www.ragatzassociates.com.