Fractional developers in the world’s greatest cities are proving the right location is just one factor in creating an impressive urban fractional.
By: Sarah Lee
Urban fractionals aren’t necessarily going to work in just any old city – it has to be somewhere with international appeal, a global business hub, attract visitors, come rain or shine and be the type of place people have an enduring desire to visit and revisit. Get it right and an urban fractional can prove a winning formula and attractive investment, as developers in New York, Paris, Dubai and London reveal in this tale of four cities.
A SLICE OF THE BIG APPLE
New York’s ever increasing property prices and hotel rack rates prompted Manhattan-based real estate developers Millennium Partners to consider the fractional product for New York. The company teamed with DCP International (DCP), which had developed the first equity residence club – the Deer Valley Club – in 1992, and opened The Phillips Club in 2000.
DCP partner Steve Dering, pictured left, explained: “For The Phillips Club we predicted owners would want more spontaneous use and would visit more frequently than at resorts, but have shorter stays. Therefore we introduced just one long-lead time reservation and the balance of use on a space available basis.”
The average stay at The Phillips Club is 4.5 days versus seven days at DCP’s resorts, while The Phillips Club’s 592 owners average eight per apartment.
Pricing for a one-eighth one-bedroom apartment is $225,000. The Phillips Club is now completely sold out and a second phase – the Phillips Club II – has sold 111 fractional shares in the past year.
“The keys to developing a successful urban fractional are to make sure it’s in a city that people want to return to regularly," said Dering, "and to craft your owner per residence ratio and reservation policies to satisfy your market.
"We also structured the residence club programme for Palazzo Tornabuoni, a 15th century palace in Florence, Italy, and, like The Phillips Club, a significant part of the market comes from the US.
"Since US buyers will spend substantial money and time on travel for each visit, they want longer stays. Consequently, we predict US owners at Palazzo Tornabuoni visit less frequently but will do so for up to two weeks, so our reservation policies allow for longer stays."
A PIED-Á-TERRE
Walid Halabi established Paris-Pied-á-Terre Fractional Ownership, now the Paris Residence Club, with his properties in the city’s 6th and 7th arrondissements. He has sold one-twelfth fractionals – two fixed and two floating weeks a year – to empty-nesters and families with a
passion for the city of romance.
He said: “Our owners purchase high-end luxury residences with the facilities and amenities of an upscale residence club. They get the comforts of home with all the services of a fine hotel. People come here to get a real Paris experience. But if they want a change we also have a house in Provence and a yacht in the South of France they can exchange into.
“Location and quality are important factors in establishing an urban fractional, but the service levels
are just as critical."
Paris Residence Club’s customers mostly come from the US, Canada and Mexico and will visit for a minimum of a week at a time. “They are baby boomers,” said Halabi. “They have worked hard at executive level and want to enjoy their money.
“A mistake people make is in selling a fractional just as an ideal product for families. While this is mostly true of rural areas, a large number of my owners are empty nesters who see it as ‘their’ place, where they can come for a break without children and grandchildren.”
LONDON CALLING
Toby Pocock's London Fractions is poised to enter sales on the first of its five properties and become the city's first pure fractional product. Pocock explained: “We are selling 28-day shares to 12 investors in each of our properties, so we will be pooling a small number of investors, thus making ownership more personal than if you were to purchase a share in a hotel."
London Fractions has properties in upmarket areas of the capital – Mayfair and St James, Knightsbridge and Belgravia, Marylebone, Westminster and the South Bank, as well as Tower Bridge and the City. The company’s research has shown that properties in these areas rent for around £3-5,000 a week.
Pocock, pictured left, said: “This is a substantial amount of money and people don’t like staying in hotels anyway, as they like to entertain friends where they are staying so a fractional makes a good alternative.”
The company plans to sell its fractional product for anything between £70,000 and £300,000, and owners will be able to visit the property on fortnightly rotations each year.
There will also be the potential to exchange within the company’s group of properties.
So far interest in London Fractions has been good, with most of it coming from Asia, the Middle and Far East, and people aged 40-45.
As with most fractional operations, London Fractions will provide a concierge service but it will also offer owners membership to London clubs.
Pocock explained: “We look to package entertainment opportunities with our accommodation, so that our owners will have all the comforts and conveniences of home here in London.”
LUXURY AT THE PALM
IFA Resorts and Hotels’ (IFA) is set to open a luxury private residence club in 2010 as part of its Kingdom of Sheba mixed-use resort on the Palm Jumeirah in Dubai. Fairmont Heritage Place, Kingdom of Sheba, will comprise 46 accommodations – ranging from two-bedroom apartments to five-bedroom homes with swimming pools.
It is situated on a site including 350 private residences, a 150-room Fairmont Hotel, and a 100-unit shared vacation ownership club. IFA joined forces with Fairmont Hotels and Resorts in developing the club, so owners will be able to exchange for stays at other Fairmont resorts and world class hotels such as The Savoy, London.
Deputy vice president, vacation ownership, Kevin Wash explained: “We have had a lot of interest from GCC nationals, people from India, Pakistan and China.”
Entry level properties at the PRC start from $400,000 for a four-week ownership, however IFA is selling just 40 weeks per property to allow owners to visit whenever they wish. So far IFA has sold 85 per cent of released inventory – 35 per cent of the total available.
For Wash, identifying a city and developing your resort are just the first steps to a successful urban fractional. “You need the sales and marketing expertise to make the product work,” he said.
“Equally important is to provide the luxuries of a boutique five-star hotel – concierge, and quality interiors, as well as individual services such as giving owners space to display their own keepsakes and mementoes.”
SPOTLIGHT ON CITIES
Group RCI's vice president, business development, Nick Turner said: “The reasons why people buy a fractional point to the fact they’re a great product for cities. They want to buy in desirable destinations with year-round appeal and attractions such as culture, shopping, or in the case of Dubai, all this plus great beaches.
“In the past people who may only have used a second home five weeks of the year could at least see capital growth in their investment, but the opportunities for such growth are shrinking along with property markets in these countries.
“This is making the urban fractional an increasingly attractive proposition and we’re expecting more high-end real estate companies, serviced hotels and apartments to enter the fractional market in cities worldwide.”
As an indication of the speed of development of the urban fractional sector, Group RCI has established a dedicated team to work with European developers to grow their fractional, destination, or private residence clubs.
