How You Price Your Fractionals is Important

Pricing model – While it is true that developers and be able to double their facilities selling price with fractionals over full ownership, but you need the right program in place to achieve that goal.

Initial sales price – The initial sales price is mostly determined by the overall market and pricing for the unit if it was for sale as full ownership on the open market. BWF has mark-up factors we would apply depending on other factors.

Unit location – Obviously units in the best locations command premium prices.

Square footage – If square footage differs between units, they should pro-rated based on Sq/Ft/Meter just as full ownership would.

Fraction % - The number of days the fraction includes

Fixed program or rotational – Fixed programs will have a much more varied pricing structure than rotational ones. The key is making it based on factors which are easy to understand.

Annual maintenance & reserve – Every fractional program comes with an annual maintenance fee which includes the operating budget and the reserve fund allocations. A few key things you must remember:

Maintenance fees – should include the correct percentage of that fraction’s overall ownership of the property. This would include:

All annual operating expenses

Management fee

Monies banked for reserve

Reserve Fund - A fund to pull from for replacement of key operational items, furnishings etc. (essentially your property’s “rainy day fund”.) A consulting firm specialist should be brought in to forecast specific needs for a 20-year look forward so you can properly plan the correct amounts to put aside each year. It is of the utmost importance to budget your reserve properly. Don’t become one of those properties which has constant “special assessments”. This needs to be the rare exception rather than the rule, your owners will be happier and your values should increase.

Other fees:

Management fees – You must have a professional property management company watching over your property. One who hopefully delivers great service for a price that is in-line with the marketplace. It is important that you be able to justify your annual maintenance fee and refrain from overcharging your owners as this becomes evident when comparing you with other properties.

Hire a professional management company – A luxury property needs a professional operation. This means a professional company managing all aspects of the property from customer service to ongoing maintenance and future planning. DO NOT TRY AND DO THIS YOURSELF or give a friend a chance. The result will always be a disaster.

Reservation type fees – Make sure you include any of these costs in your annual maintenance fee. Owners will look at extra fees like this as “penny-pinching” and you don’t want to be known for that.

Rules & Regulations – Rules and regs should be fair and treat your owners as owners, not renters. While it is fine to treat renters differently and charge for things like parking and resort-type fees, your owners should be excluded from these type fees.

It’s the owner's time not yours anymore - They should be able to rent the extra time they will not be using. It’s fine to have a professional rental agent managing this time for owners but you must keep the fees in line with the marketplace and try and stay away from exclusive/restrictive agreements unless you are having issues keeping rental prices up.  

Renting unused time – We have seen many programs that did not allow owners to rent. Most savvy buyers will want to monetize this extra time and they should be able to freely do that. Many properties that have tried to keep their resort “super exclusive” and have restricted rentals are no longer in business.

Be “owner-centric” – Decisions that are made always need to keep the owner’s best interest in mind. This means those decisions should benefit both the owner and the developer. It will become instantly recognizable if many key decisions only benefit the developer.

Purchase contracts and governance documents – Wherever possible both your sales contract and your governance documents must highlight key areas and be easy for your buyer to understand. We have seen many properties spend endless time getting their buyers to the contract stage only to lose their prospects because of their contracts.

Technology infrastructure – This is an area of extreme importance that is often overlooked. Many “standard” hotel software systems out there do not work for the fractional model. The system you buy and put in place should be easy to use (both internally and for owners) and should be integrated with your financial and operational software. Get this wrong and you will have a resort that is handcuffed, inefficient, and will be more costly to operate.  

Re-Sale programs – Resales of a high-end fractional property should be able to be sold through licensed real estate brokers. This gives the owners the greatest flexibility and chance of resale. Doing resales internally is an option although one that is fraught with potential issues. Here is a prime example of doing what is best for owners as you will never be able to achieve the reach and give your fractional property the visibility and legitimacy that a registered broker will.  

Do what you can to increase long-term fractional values – We mentioned earlier that if a fractional program is set up properly there are many advantages for the developer both short and long-term. Unlike selling full-ownership condos or homes, fractionals can get you much higher selling prices, but the responsibility of the program you implement does not stop after the sales are made. The program, the board of directors, and its management company should always be focused on increasing the value of the investments your owners have made in your properties. This will result in happier owners and the word will certainly get around which will help you tremendously in your next project!