‘Fractional’ Ownership Offers Lavish Lifestyle

Timeshares conjure mixed images. The concept—based on sharing ownership of a vacation property for a set amount of time per year—inevitably brings up tales of high-pressure sales pitches, tiny condos and second-rate resorts. You can even buy a timeshare online at eBay for next to nothing.

But the industry has undergone a renovation over the last decade or so, with timeshare sales volume nearly doubling from 2002 to 2006, according to an Ernst & Young study. And although there are still plenty of inexpensive ways to own a vacation spot for just one week a year, there are also arrangements to suit those who might well be able to buy an entire luxury property outright, but find “fractional” ownership—as developers like to call it—a smarter, more convenient and fun way to spend their money.

Howard Nussbaum, president of the American Resort Development Association, calls these folks “the rational rich”—the baby-boomers, empty-nesters and others who are driving fractional real estate growth with all that free time and money.

“Unlike their parents, they don’t have that Depression-era mentality that says you have to own your own stuff,” he said. “They get the idea of pizza by the slice. They get the idea of the value proposition of shared assets, and this is a very attractive second-home alternative.”

Timeshares, on the scene for more than two decades, began to gain prestige in the mid-1990s with high-end resort developers such as Marriott, Ritz-Carlton, Hilton and Hyatt coming into the fray.

Sherman Potvin, a consultant for major timeshare operators, distinguishes the higher-end “fractional” ownership from the traditional timeshare concept, which he describes as generally cramped quarters—a one- or two-bedroom unit in a resort, or perhaps a very good or even lavish resort, but still a small space. Timeshare owners typically get this space for one week, either the same designated week each year or in some range of time. “Fractional,” on the other hand, emphasizes buying actual real estate instead of time, and often entails larger units or a standalone house, with shares ranging from one-thirteenth (four weeks) to a quarter (13 weeks) of the year.

Potvin operates a Web site, luxuryfractionalguide.com, with links to scores of luxury fractional ownership opportunities around the world. And the variety of properties available at any given time could intrigue even the most jaded vacationer. Want a one- or two-bedroom cottage in a restored 14th-century Tuscan hamlet, among rolling hills, farmhouses and moss-coated castles—with concierge service for tee times and high-speed Internet access? Someone was selling 10 percent shares in August. How about a 17th-century gated château outside Paris with a hand-carved renaissance fireplace, Jacuzzi and sauna, furnished with antiques? An eighth of the property was recently asking for 118,000 euros.

Those with particular hobbies, meanwhile, can join the many ownership clubs that link with prestigious golf resorts or other activity-related properties, such as a polo-themed fractional ownership development being planned for upstate New York.

And if you’re living that kind of lifestyle, you might also want some cars, boats and accessories to complement it, at least for a little while. In fact, the idea of living in luxury—even if only for a week or two a year—goes beyond real estate. For instance, True Classics, an English outfit, lets its members drive Aston Martins, Jaguars or a ’57 Thunderbird. Nowadays, one can also buy fractional ownership of yachts, jets, even a patch of vineyard in France or California. There are even clubs for the Netflix-like rental of designer clothes and handbags, so owners can dress differently every time they visit that ski condo in Colorado.

Potvin said more and more people are catching on that they can enjoy luxury properties without the hassles of full-scale ownership, as fractional memberships in high-end destination resorts become increasingly popular. Why, he asks, would someone buy a condo on the ski slopes of Beaver Creek, Colo., for million to million and have the worry of constant ownership, when an eight-week share of a residence at the Ritz-Carlton Club can be had for about 0,000? Potvin said data shows that homeowners with second properties only visit them three weeks to four weeks out of the year anyway. “I know it’s true because I’m guilty of it,” he noted.

The Ritz, like other destination club ownerships, offers members stays at different locations at different times. Even many inexpensive properties—recognizing that spending a week in the Ozarks every year for the rest of your life doesn’t sound that thrilling—now belong to networks of timeshares that can be exchanged, which ostensibly allows owners to trade for weeks of comparable value among the variety of destination spots in that particular network. So in theory, you could trade in your Ozarks week for, say, a timeshare in Las Vegas one year, the Caribbean the next year and so on, depending on how many destinations are in your network.

However, like frequent-flyer programs, the rules, restrictions and waiting times on these exchanges have proven frustrating for some, and there’s a class-action suit in progress against a leading timeshare exchange company, Resort Condominiums International, over the issue of trade-in difficulties.

But timeshares continue to appeal to many vacationers because of the wide array of choices—and costs. In fact, there are timeshare options starting at about one dollar—at least, that’s the starting bid, assuming no one beats it, on various timeshares available at any given moment on eBay. That’s because it’s not uncommon for many timeshare owners to get tired of their property and just want to dump their purchased week and stop paying the taxes and maintenance, which may run anywhere from a few hundred to a few thousand dollars or more annually.

Indeed, bargains may seem to be everywhere, but timeshare veterans and especially the developers of new resorts warn buyers to be careful when buying older units or using unknown brokers. Older resorts may be inferior. Warranties may only apply to original buyers. Some resorts have ownership transfer fees that could exceed the value of the timeshare. Others are growing old and running up shocking maintenance costs that owners cannot dodge. And in rare cases, actual scam artists can overcharge or sell phony properties on paper that they don’t own or don’t even exist at all.

“If you are purchasing a resell that you have never actually seen, the potential risks are even greater,” said Nad Nouisser, president of the Association of Timeshare Sales Professionals-International, which does not represent “resellers,” as the brokers of used units are called. “We love hassle-free vacations. So why take an unnecessary long-term risk? Resale timeshares have few advantages, but the disadvantages can be huge.”

Nevertheless, he added that some developers have sold new properties on eBay, offering buyer guarantees beyond what eBay provides, and buyers had no apparent problems. In addition, many of the people who buy cheap older units have purchased timeshares previously and understand the process sufficiently to land a good deal without major problems.

The timeshare and luxury marketplace is looking abroad for growth as well, with resort areas springing up in places such as Mexico, Costa Rica and now South Africa, which Nussbaum said is leading the worldwide boom. Timeshares—including the network-exchange timeshares—can now be found in virtually every part of the world. In fact, in August, some in the timeshare industry headed to Delhi for a tourism conference, where they explored timeshare development options. Moreover, in some nations where local laws restrict foreign ownership of property, timeshare arrangements provide a much smoother avenue toward the type of ownership (say, two or four weeks) that most people would want anyway.

Developers of the higher-end fractional ownership properties claim their arrangements are better investments compared to traditional timeshares that sometimes see their value wither away. Nevertheless, developers on both sides want buyers to think of their vacation property as an investment whose return is a more enjoyable life, rather than a pile of cash. “It’s about owning your own vacation,” said Nussbaum. “The value proposition comes from use.

Nouisser of the Association of Timeshare Sales Professionals-International believes that the market’s desire for high-end vacation shares will only flourish. He predicted that branded hotel-resorts will continue to improve in quality, offer multi-destination travel clubs, and increase sales for the next 15 years or so. The fractional ownership market may get saturated in the next five to eight years, he cautioned, although there will still be a drive to offer more kinds of fractional high-end products and services.

“The fractional ownership is more of a status statement rather than a vacation home,” Nouisser said. In other words, more people want to live like millionaires for just one week a year, he said, and they have the money to do it.

Even within traditional timeshares and, for that matter, mid-range residential construction, Nussbaum noted that there’s been a movement to grow more amenity-rich and upscale. “I think that’s a whole movement in our American dream,” he said. “For some people it’s aspirational, for some people it just mirrors their own lifestyle.”

About the Author

Sanjay Talwani is a contributing writer for The Washington Diplomat.