Demystifying Fractions, PRCs and Destination Clubs

FRACTIONAL INTERESTS

Fractional developers sell an alternative second home product, which provides expanded use rights along with extensive amenities and services. Fractional Interests typi­cally offer between 1/12th and 1/4 ownership, giving the fractional owner between 4 and 13 weeks of use per year.   With larger fraction sizes, promoters will often consider offering some form of rental program.

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As contrasted with a timeshare, this prod­uct has a real estate “feel” and is not sim­ply a bundle of timeshare weeks. Fractional Owners anticipate appreciation like other second home owners. The frac­tional product appeals to those who can vacation more frequently and intend to return to a single location season after season. Many of these projects use a rotat­ing calendar or rotating priority system in order to allocate use rights. Acquisition costs and annual fees are significantly higher than timeshare, as also is the size and specification of the property.

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PRIVATE RESIDENCE CLUBS

Private Residence Clubs (PRC’s) arc the highest end fractional products that cater to persons accustomed to a level of service not common except in the extreme luxury end of the economic spectrum of resort users, sometimes referred to as “the money rich, time poor” for whom leisure time is at a premium and who therefore expect to be pampered whilst on vacation.

Fraction sizes are usually smaller for pri­vate residence clubs as compared to tradi­tional and high-end fractional interests, ranging between 1/7th and 1/17th. Subject to space available limitations, owners usually have unlimited use of facilities and lodgings, a privilege they usually pay for through high annual maintenance fees or “dues,” and in some cases a daily use fee.

Service levels and member privileges confer a sense of genuine exclusivity. The Private Residence Club represents the pinnacle of quality in both accommodations and amenities—truly “five-star” in every respect.

DESTINATION CLUBS

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Members have the right to vacation in various accommodations, subject to the reservation procedures that are estab­lished by the club. The member typically does not own any real estate and can resign his membership at any time and receive a refund, which typically equals 80 percent of his deposit. Annual fees are higher than timeshare or traditional and high-end fractional interests.

Initial acquisition costs are often in high six figures, and annual dues run in the thousands of dollars. Most of these prod­ucts are non-equity. You are really buying a contractual right to occupy, and buyers trust the developer to run the facilities at a break-even level to assure continued use. A small number of destination clubs have an equity structure that varies from club to club but which gives members an own­ership interest in the real estate held by the club. Memberships typically cannot be resold, with the club controlling re-sales. Destination clubs retain the flexibility at the developer’s discretion to add or subtract residences in the club inventory based on member demand and available opportuni­ties to acquire “top of the line” residences.

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