The Palms Costa Rica

Wade Shealy, founder and creator of 3rdhome.com and one of the most knowledgeable people I’ve met on the second home market, tells me fractionals are going to come back strong. Fractional vacation home ownership makes sense; you own a deeded right to your property for a “fraction” of a year, which is why most people like this kind of vacation home ownership — who has more than 2 to 4 weeks of vacation time a year, anyhow?

Add in high maintenance costs and the desire to try out different destinations each year, you can see why fractional ownership is becoming increasingly popular, especially overseas.

But is fractional ownership just a more luxurious and upmarket version of timeshare, as the Wall Street Journal recently posed? No. Fractional ownership means you actually own the bricks and mortar, or buy a share of a single property or, in some cases, a whole portfolio of properties, which you are then entitled to enjoy. When you buy a condominium, for example, who don’t buy a whole building but the right to use common areas and the specific square footage you have purchased. That’s the way fractional vacation home ownership works.

With ten million vacation home owners in the USA, 50 million across the world, get ready to hear more about fractionals, here and abroad. There’s simply too much inventory in the second home marketplace to sell all as individual units in a locked-up mortgage world. At the upper end of the market, you can buy into quite simply yhe world’s best properties — The Timbers, one of my favorites;  Calistoga Ranch in Napa Valley, 5 star plus service cottages on a northern California wine country creek… for $475,000. Or look at The Palms in Costa Rica — ocean front villas on the beach with amentities that will make your head spin for a fraction of what you’d have to pay for a full home that will have to be maintained when you are not there. Here’s a list of the ten best places for shared home ownership.

That’s why I asked Elaine Joli, author of “Vacation Nation:  The Complete Guide to Timeshare, Private Residence Clubs, Fractionals and Destination Clubs” to tell us more about the rise in fractional home ownership:

It is mid January and Joe and Karen Tutrone take their final ski run of the day.  They race each other down Doc’s Run to the base of the Canyons Ski Resort in Park City, Utah.  Their cheeks are flushed a bright rosy red, and their smiles are as wide as the vistas they viewed at 9,000 feet.   Joe stomps the powder snow off his boots, and walks with Karen through the comfortable but elegant lobby in the Grand Summit Resort Hotel. They take the elevator up to their million-dollar one bedroom luxury residence, laughing about the spectacular day they had on the slopes wondering if they have time for a massage before meeting their friends for dinner in Park City.

The same week, Jeff Silberman and his wife Karen breathe in the fragrant Pacific air, and take in the spectacular view of Kapalua Bay from their multi-million dollar two bedroom, three bath, top floor residence in the Ritz-Carlton Kapalua in Maui.  Their two teenaged daughters are splashing in the 8,500 square foot lagoon below, with plans for an afternoon zip line adventure.

“I feel very fortunate to have this place as a second home,” says Jeff.

Fortunate indeed.  But more and more Americans are finding ways to enjoy a million dollar lifestyle for a fraction of the cost.  Jeff and his wife are deeded owners in the Ritz-Carlton Destination Club; a concept that offers Jeff and his family, use rights for 21 days a year in this luxury residence and hotel complex.  Joe and Karen are deeded owners of a quarter share, one bedroom luxury residence in the Grand Summit Resort Hotel, in The Canyons Resort, which allows them 12 fixed weeks of use every year.  They use their residence two to three times every winter to enjoy the spectacular skiing in Utah, but since they don’t use their residence in the summer and fall, they place their additional weeks in the Grand Summit rental program.

In almost every high-end resort in the United States and abroad, the possibility of owning a deeded interest in a luxury residence is still within the means of many Americans, even in this economy.

Traditionally, owning a luxury vacation home meant a very large capital investment, plus the annual costs associated with the maintenance and upkeep of the home, even though most families only vacationed there only a few times a year.  In an article in The New York Times, Paul Sullivan quotes Milton F. Pedraza, chief executive of the Luxury Institute, “People become slaves to their homes.  They buy into the headlines and that makes them pretty miserable with their vacation homes.  Mr Pedraza said one common cause of second-home misery was that owners failed to factor in how much time and money were needed to maintain a place hundreds, if not thousands of miles away.”

Today, ownership options have expanded to include private residence clubs and fractionals, offering deeded ownership with a use right that fits with the busy family, without the hassel of upkeep and maintenance.  The residences are often found in  “rare air” resort locations taking advantage of a fabulous ski hill, an award winning  golf course or white sand beaches, although there are many developments that offer the serenity of desert living or the rugged outdoor life in Montana and Colorado.  Services typically offered owners include daily housekeeping, 24/7 concierge, pre-arrival preparation and stocking the kitchen with favorite wines and food, airport transportation, and valet services.  Resort amenities typically include swimming pools, hot tubs, spa facilities, private owner lounges, restaurants and lounges.  In addition, most fractional properties offer a rental program to owners, as well as an exchange affiliate membership, where owners can exchange their residence for another residence (of the same value) in thousands of locations across the globe.  The exchange affiliation now offers its members experiential vacations (think  safaris in Africa, a cruise around the Mediterranean, wine tasting in Napa).

Ragatz Associates, the leading analyst and market research firm in the resort real estate industry, released their annual shared ownership survey in March 2010, where some 322 projects in the U.S, Canada, Mexico and the Caribbean have been identified, with 125 in active sales.   Just as with many other goods and services in the United States, sales volume in the industry was down 44% in 2009, from a high of $1.525 billion in 2008.  Whole ownership vacation homes were down by an estimated 60%.  Remarking on future trends, Ragatz states, “It is widely felt in the resort real estate industry that shared ownership resort real estate will rebound more rapidly and more strongly than whole ownership resort real estate as the country’s economy recovers.”

This optimism may be well justified, as the model for fractional real estate is based on personal use rather than speculation, the exchange opportunities, flexibility of use, the hassel-free form of deeded ownership, as well as the economic logic to owning only what you use.

Jeff Silberman’s family and Joe Tutrone’s family certainly have different ideas on the perfect place to get away in the winter months.  But both families have invested in what may be more important that owning simple real estate – spending time with loved ones, building memories and knowing they are getting away several times a year to a place they love.  And in this economic climate, perhaps fractional ownership presents a new affordable opportunity to do just that.

I’ll be honest: I was reading the doom& gloom real estate report in the Wall Street Journal last night, and gearing up to post something for you because, honestly, I always want to tell you the truth about the market. I know financing is 100% of our problem with the double dip — oh and I just heard that FDIC chair Sheila Bair is out effective July 1.

But I just could not write it. And I’m glad.

This morning I talk to Jeff Mitchell and David Griffin, to learn that 960 Kessler Parkway went under contract within one day of listing, and I think, where is this damn depressing data coming from? Further: Jeff tells me that of the last four homes he has sold, they all sold within four to five days of listing. I talk to my banker on Friday. She lives in Merriman Park Estates where prices have actually gone up! She bought her home in 2005 and it’s worth today more than it was then. Highland Park, she tells me, is where values are down.

The real estate market is a huge head-scratcher.

So get this: Jeff and David list Kessler on April 22, 2011. The next day, Pete Ryan from Briggs Freeman Sotheby’s brings in a client, who plops down a contract later that afternoon pretty close to asking ($995,000). Today is the last day of the option period and my guess is that by the time you are reading this, Kessler will be sold on paper and Todd will have had 24 hours to recoup from the Schlegel wedding and then start packing. He paid over $799,000 for the property in 2006.

I’m telling you, there’s no rest for the wicked and that includes ME! And BTW, Kessler Park real estate is on fire!

We’ve talked about Val Kilmer’s Pecos River Ranch, the unbelievable beauty of the property about 22 miles east of Santa Fe, most recently listed for $18.5 million but originally on the market in 2009 for $33 million. Talk about lowering the price! The ranch is so very special because it has roughly six miles of a popular trout-fishing river running through, glorious wildlife, a four-bedroom, four-bath log-built house as well as several guest and staff houses. There are 10 natural springs, world-class fishing and more than 50 miles of hiking and biking on a beautiful trail system on 6,000 acres. The 10-bedroom, 10-bathroom main home has 11,573 square feet. There’s also an equestrian complex. The Wall Street Journal reports its under contract. There was speculation Kilmer would split some of the 6,000 acres for a quick sale but the agent tells me no,  the entire property is under contract. Also says: “still working out the particulars and able to take alternative offers.” Hear that? May not be too late! Now that’s a good, cautious agent because as anyone in this market knows, it ain’t over till everyone’s closed.

Mr. Kilmer, who has starred in films including Batman Returns, wanted to run it as a bed and breakfast a few years back but his neighbors were not too keen on the idea. Check out this slideshow from the Wall Street Journal, and see why I’m in love.

Remember when the Wall Street Journal told us crime was so bad in Mexico that even the Mayor of Monterrey, Fernando Larrazabal had fled and re-located his family to the Dallas area? (I found out it was to Las Colinas, and y’all got mad at me. I also found out on a visit to La Paz, Mexico, in November that Sr. Larrazabal wanted to be closer to her family here in North Texas.)  Crime there is way out of control; the city is caught in a war between two drug cartels, the Gulf Cartel and the Zetas. A U.S. Federal ICE agent was recently murdered, and the violence could be spreading to the U.S.

I talked with my landscaper, who used to drive through Monterrey on the way home to see his parents in Mexico:  he told me he no longer drives through Mexico.

“It’s terrible,” he says. “My wife, she is afraid. They are killing people in Monterrey every day. EVERY day!”

It’s the drug cartels, he told me, and he blames the Mexican government for not wanting to accept any assistance from the U.S. There have been 350 killings in Monterrey this year, which is the third most populous city in Mexico with 3.7 million people. August 18 the body of the mayor of nearby Santiago,  Edelmiro Cavazos, was found on the outskirts of Monterrey, an industrial center with close U.S. business ties. Two doctoral students have been killed, guests at a Holiday Inn kidnapped, and the cartels killed two bodyguards right in front of a school. Many Americans and even some wealthier Mexican are out of there and ending up in Texas — so in a perverse way, this could be good for our property values.

I still recall the story of a rancher who was kidnapped and held hostage for over a year in a box, beaten, shot, barely fed, all to extort ransom money from his American-born wife. Guess where this happened: San Miguel D’Allende. On the show, the couple, who were both in real estate, said initially they were asked to keep quiet about the kidnapping for fear of the damage it would do the to real estate community.

I wrote a piece for AOL this week that was very telling: cash real estate transactions are up, as originally reported by the Wall Street Journal: in fact, cash buyers may be juicing up the market, especially in the underwater areas. The WSJ wonders if this could be a good gauge that the market has bottomed. When looking deeper, I found that cash real estate transactions were as high as 51% of all the real estate transactions in troubled Las Vegas, where it is cheaper to buy a home than rent IF you can get financing.  Cash buyers represented more than half — 50 percent — of all transactions in the troubled Miami-Fort Lauderdale area last year, this according to Zillow.com. Looking back at 2006, cash was king on only 13 percent of deals. That cash was enough infusion to make Miami home prices actually rise 15 percent in 2010 from a year earlier, according to the Miami Downtown Development Authority. And in drowning Phoenix, the percentage of buyers in Phoenix paying cash hit 42 percent in 2010 — which was more than triple the rate in 2008.

Nationally, the National Association of Realtors says only 28 percent of real estate sales were all-cash deals last year. Compare that to a rate of 14 percent in October 2008, which is when the NAR first started tracking the measure.

So I want to track the cash sales rate in Dallas. If you have made any cash sales or purchases, please pipe in right here and comment. What I’m hearing is that there are a lot floating around, and deals are coming in at 10 to 20% the asking prices. On a $2,200,000 home, a cash buyer plunked down a cool two million and the seller said, deal. This in Park Cities.