Steamboat Bill

How does joining a Destination Club compare to buying a Fractional Ownership or Private Residence Clubs?

I believe that Fractional Ownership properties (condos, townhomes, homes) and Private Residence Clubs (PRC’s) are the #1 competition for the Destination Club Industry.

Fractional real estate is very popular at popular resort locations and it seems that a new one pops up every week. Fractional properties at some ski resorts rival the best accommodations anywhere (especially in terms of locations) and can be as little as a studio to as large as 4 bedrooms.

Both Fractional Ownership and PRC’s offer shared real estate ownership in a luxury vacation asset which is typically located in a resort. The distinctions between Fractional Ownership and Private Residence Clubs can be subtle, but PRCs are generally more exclusive than Fractional Ownership and usually have fewer owners and brand name sponsors (i.e Ritz Carlton, Four Seasons, Fairmont, St. Regis).

According to Dr. Richard Ragatz, in his March 2007 Shared Ownership Study, today’s Fractionals range from two-week shares of annual usage to three months with selling prices averaging over $247,000 and maintenance fees averaging nearly $7,000 per share. Fractions are typically between 1/8 and 1/4 ownership, giving the fractional owner between 6 and 13 weeks of use per year.

I have personally received a quote from the Four Seasons Residence Club in Jackson Hole and here are the details:

1/7 interest in a 3 bedroom = $474,000 for 14 nights in Winter, 14 nights in Summer, and 7 nights in the shoulder season. The annual dues is $15,991 per year.

For this example, I will use the following method to calculate the cost per night – Lost opportunity cost of the purchase (5%) + annual dues / night purchased. This is not a perfect system as I have not accounted for the resale value of the fractional (some have had nice appreciation and some have been hard to sell) and the nonrefundable portion of a destination club membership fee (20% average).

I will use the following numbers for buying a 3 bedroom Four Seasons PRC: $474,000 purchase price and $15,991 annual dues. The cost per night = $23,700 + $15,991 / 35 = $1,134 per night or $378 cost per night per room. One caveat is that the shoulder season will probably never get used for most owners, thus the cost per night will be higher…$1,417 per night or $472 per room per night based upon 28 night usage.

You can compare this to any destination club, but I will use BelleHavens Adventurer as a comparison:

Adventurer member = $225,000 membership fee and $18,500 annual dues for 30 nights. The cost per night = $11,250 + $18,500 / 30 nights = $991 per night or $330 per night per room (based upon 3 bedroom property) or $248 per night per room (based on 4 bedroom property)

The advantages of buying a Fractional or PRC vs joining a destination club include: you are buying deeded real estate, you have the ability to rent your week on the open market, you can get preference in reserving the single location you may want to visit every year, it can be transferred to a family member, possible tax deduction, you really love the luxury brand name of the resort.

The advantages of joining a destination club vs buying a timeshare include: opportunity to stay in a larger property in terms of square footage and number of bedrooms, home-atmosphere rather than a resort setting, you have a choice of multiple destination locations rather than only one location, and you don’t have to worry about reselling your week.

Steamboat Bill

If I was in the market to buy a PRC, I would probably buy into the Four Seasons for one particular reason alone:

The Four Seasons has 14 operational private residence club properties, with 10 new locations under construction and in pre-sales, and 25 in various stages of planning.

The Ritz-Carlton is a very nice alternative, but only has five current locations and four in development.

The lack of variety of PRC locations is the #1 reason keeping me from buying a PRC.

Kagehitokiri

RC allows unlimited space available use for $300/nt

TravelGuy

Is that unlimited use at the owned RC resort or unlimited use across all RC resorts? One of my big concerns when I evaluated RC was that RC itself gave me huge disclaimers that the RC PRC was developed by multiple third-party developers and they could not guarantee the future exchange relationship between the RC resorts. RC was also very non-committed to future development and told me to make my purchase based upon the current properties only.

TarheelTraveler

I like the equity/ownership concept of PRCs, but I don't like the limited locations and the relative difficulty of swapping locations. From the PRC legal documentation that I've read, it is very clear that you have no legal rights to exchange properties (it is all subject essentially to the exchange agreements that are enterered into by the property managers themselves, which can change as ownership changes or for other reasons) and generally have a very low priority in swapping properties. In other words, you've got a very high priority at your location and consequently have a low priority elsewhere. I think that you've got to really like the property that you're buying into and not really count on the ability to go to the other locations when you want. It reminds me of timeshares. On paper, it looks great that you can exchange time at various properties, but it is much more difficult to actually accomplish in reality. I'd love to hear from some PRC owners on the ease or difficulty in exchanging properties. I love that with a DC, you just go online and a matter of seconds, you can book any property.

3DH

I absolutely agree with your thoughts, Tarheel... PRC reminds me of expensive timeshare, too. While I agree the amenities as well as the actual units are substantially larger/nicer, if that concept interests you, it would be absolutely necessary to purchase one somewhere you want to spend 4-6 weeks a year. (depending on fractional interest...) The "exchange" factor, while there on paper, doesn't mean it will actually be an option so far as availability. Without the availability to exchange on the spot and see available "inventory" (which I believe are actually available through outside sources, but at an added cost) the DC concept is much better for travel variety.

That said, my sister owns a fractional, and has been able to rent one or two of her four weeks per year for more than what her annual dues cost. So, the option is there to cover your expenses, if you are wanting to at least travel to the same location year after year...

__________________
"Boutique" is better! Another extremely satisfied LUSSO member!

vineyarder

Glad to hear that RC is being honest and upfront; I had a the opposite experience with Four Seasons; vastly over-promised and under-delivered! They promised lots of trading opportunities and a long list of planned locations, but in reality the development of the additional properties has been very slooooow, and the trading opportunities are essentially non-existant; per their staff, in the last 2 years, not a single Aviara or Scottsdale owner has successfully traded into Jackson Hole, and they won't even pretend to offer trades into Costa Rica!

TravelGuy

Unfortunately, they may have eventually been honest but they were not "upfront". I had to push and pry to get the info that they gave me. Only when they realized that I was involved in real estate development and that I would ask for EVERYTHING in writing did they "fess up" to the real facts. I also had the advantage of knowing the actual disappointing experiences of both 4Seasons & RC owners from TUG and other forums before I talked to RC.

TarheelTraveler

Vineyarder - If I recall, you have an RC fractional as well as a FS. How has the RC fractional been as far as exchanges and how has your overall RC experience been as compared to the FS?

BTW, interesting article on the Helium Report about someone like RC getting into the DC business.

DC4MS

I read that article, but they did not provide any new information as it is purely speculation. There have been many online discussions about a hotel chain like Ritz entering the Destination Club market.

If the Ritz or Four Seasons can create a "true" Destination Club with 100% flexibility of locations and dates, they they will have a serious alternative to joining other clubs, but they will probably be mainly 2 bedroom resort style locations. If they have 3-4 bedroom locations, then the price will probably be in the same range as Exclusive Resorts.

Perhaps Donald Trump will enter the Destination Club market.

vineyarder

Actually, I live in a Ritz Carlton community, with a spa membership/resort privileges, but it is whole ownership, not fractional, so no exchanges/trading involved. Overall experience has been extremely positive! Good memory...

ladavis

As many have already stated, the "choice" between a fractional interest in a residence club or membership in a destination club is all based on personal preference of travel options. I personally have both.

Aspen is one of those places that I want to spend time each year, but I also want to have the options available to me to travel to locations that St. Regis doesn't have exchange privileges (currently only in New York and Phoenix). If I don't want to use or exchange my four weeks in Aspen, I can exchange up to two of them for 100K Starwood points per week or place them in the SPG rental system. Either way, it pretty much "pays" for another vacation to any other Starwood property with upgrades to the best available room since owners are given Platinum Starwood Membership.

I'm quite happy with both the St. Regis and Exclusive Resorts purchases as I am able to satisfy the second home feeling with frequent visits to Aspen as well as international travel through ER.

Kagehitokiri

welcome to the forum

ladavis

Thanks...looks like an interesting place!

vineyarder

I agree completely; each has its purpose and benefits...


While I'm a huge fan of Starwood, I'm a bit surprised that they only give you 100K points per week when you trade in Aspen; that would only get 4room nights at a cat 6 hotel in high season (or a 2 night stay if you need 2 rooms/nt) or less than 3 room nights at a cat 7 in high season... Given the maintainance fees at St. Regis, I would think that they would give a much higher exchange value to that property... For example, if you gave up the week in a 2 bedroom and I then used my starpoints to rent two rooms at the St. Regis hotel in Aspen for a week, I'd pay them 300K points, but they only give you 100K... One heck of a 'hickey'... For comparison, if I trade in my Marriott Custom House week for points, I get 125K points, and if you rent a week at the Marriott Custom House using points, you pay 125K points, so no 'hickey' at all...