Looking At Making Your Property Fractional? Here Are The First Steps
February 15, 2010 by Perspective Magazine | Timeshare & Fractional ReviewsBy Lisa Migani
Thinking about selling your existing property as fractionals? If you need some really good background information, then start by looking at www.fractionalpropertydeveloper.com.
The biggest mistake a developer can make is to start on the fractional route the wrong way around. If you start by trying to find a marketer, then you won’t be ready to actually sell when you need to be. Reservations to sell never amount to anything – get the legal structure and all the relevant documentation right and you won’t lose any
sales opportunities.
But first, you have to understand what is possible with what you have. Are the right numbers of people going to this area? Is it really something that’s desirable to the fractional market? How much is it going to cost? If you’re looking at a villa that’s so highend that it’s going to be very niche market, then maybe now isn’t the time to launch that particular product.
For Starters
We know that there are huge opportunities with distressed real estate properties in desirable holiday locations. In Cyprus there is a surplus of holiday real estate that isn’t being sold right now; likewise in Spain, Turkey and other beautiful places. However you can’t say that any Mediterranean beachfront real estate will sell as fractional.
Let’s imagine a developer who has 50 units at a really nice property on a Mediterranean coastline. He’s sold 10 units outright, but he really doesn’t know how to sell the rest. It’s not an incredibly expensive location – the cost of the real estate has plummeted and despite that fact he can’t sell it as whole ownership. What could he be doing? Creating an
appropriate fractional product could be the answer. Let’s look at what the British want and make it affordable for them. I’m sure we can come up with a kind of fractional product which will have a market. And that could be a short-term usage plan for the fractional property owner, with the sale of the asset at the end of either 10, 15 or 20 years.
So, we’re looking at a consumer say, “I’m getting the usage that I want, and at the end of the 15 years, these villas will be put on general sale and I will get part of the sales proceeds, so I actually have an exit strategy and I will get some sort of return.”
That’s the kind of fractional that people ought to be looking at now because there’s a market out there, and for British buyers, there is also definitely consumer finance available for that product as long as it doesn’t cost more than £50,000. This scenario is not the idea that Americans have of fractionals, but rather a European solution to what the European consumer can afford and would like to buy. Fractionals can be a lot of different things. We can’t say that fractionals are all high-end and come with a title deed – because if we could, we would also be able to say that a Ritz-Carlton property is a hotel and a Premiere Inn or a Travelodge isn’t a hotel because it’s so vastly different that they don’t belong to the same category. Well, they do belong to the same category, but the market is a different
market, they are promoted in different ways.
Within the fractional model there is a huge opportunity to create an innovative product to sell to a virgin market. You could be the first to launch a highly successful, high-volume fractional resort if you do the research and have the right product.
Legal structure
The legal structure behind a product is absolutely key, because if you haven’t got something which is rock-solid you’re still not going to be able to sell because the consumer won’t believe in it. The right legal structure ensures that everybody is protected – the consumer and the developer – and everything is going to work as it is presented on the day of sale.
You must define and implement the structure which best fits your business model. Trustee ownership is ideal for many fractional models. With the short-term usage plan and sale of the asset at a pre-determined time, the trustee in effect sells the property on behalf of the fractional owners and removes the danger that one owner could obstruct the sale! The trustee also disburses the sales proceeds to the fractional owners once the asset has been sold. Choosing the correct structure at the outset is fundamental to the long-term success of any shared-ownership development and should be at the forefront of any strategic or financial planning; get it right and you really are on to a winner.
Consider the following important questions regarding a potential legal structure:
• Does it give you long term flexibility and control?
• Is it simple to administer allowing you to focus on sales and marketing?
• Will your sales closure costs be minimized?
• Are you able to provide consumer confidence without hindering the growth of your business?
The addiction that people in Northern Europe (particularly the Brits) have to buying realestate in a lovely, warm country around the Mediterranean hasn’t disappeared with the credit crunch, and it hasn’t disappeared with the economic meltdown; it’s still there. You just have to have the right product to tap into it.
For more information, contact Lisa Migani at FNTC Ltd on + 39 (0) 541 24359 or +44 (0) 7879452066, or e-mail her at lisa.migani@fntc.com
Background:
Lisa Migani and FNTC
London-born Lisa Migani began her career in the shared-ownership industry with Interval International in 1989, spending seven years as the company’s regional director for Italy. She then left Interval and worked as a consultant, working for both Interval and FNTC. She now is director of business development for FNTC in Europe, Asia and the Middle East “and anywhere else that isn’t America, where my colleague David Cox heads up FNTC America.”
FNTC is part of IFG Group plc, a financial services company quoted on both the London and Dublin Stock Exchanges that is licensed by the Financial Supervision Commission as a corporate and trust service provider. A market leader for over 30 years, FNTC manages more than £2.5 billion of property assets and provides services to over 650,000 consumers.
“We’re a bit like an iceberg,” Migani says, “because we also provide back-office administration facilities and IT solutions for all sorts of different aspects of the shared-ownership industry and this side of the work we do is often under the radar of developers as we are so well known in our role as trustee.”
FNTC doesn’t charge fees for initial consultation and will make sure that a fractional product is commercially viable before agreeing to set it up. “We make our money when our clients are successful, and we have just launched a new website, www. fractionalpropertydeveloper.com, which aims to give developers and agents the knowledge they need to understand if fractionals would work for them” Migani says.
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