A Marriage of Convenience and Class

Bringing luxury hotel standards to fractional ownership seems like a no-brainer to the executives of Preferred Hotel Group and Interval International. How those companies interact in Preferred Residences, their new alliance, will come clear when La Tranquila Breathtaking Resort-Spa & Beach Club opens in the summer of 2009.

Located about 40 miles northwest of Puerto Vallarta, La Tranquila will offer more than 100 private residences on 30 acres in the communities of Punta Mita and Litibu. It aims to blend the Mexican cultural tradition with the latest in luxury amenities.

“Every property will have an ocean view,” vows J. Jesus Gallegos Alvarez, president of Grupo Jegal, the developer of La Tranquila. Pre-construction prices for 1/12 fractional interests in the initial phase will range from $70,000 to $110,000 for a one-bedroom unit, $110,000 to $150,000 for a two-bedroom unit and $150,000 to $290,000 for three bedrooms. Prices will increase 15 percent in 60 days once construction has begun. The 73 residences in La Tranquilita Litibu, the first phase, are to be completed by June 2009. The whole resort, including the 35 residences of La Tranquila Playa Paraiso, is scheduled to be open by the end of 2010.

Interval International is a major player in the vacation ownership industry. Preferred Hotel Group offers sales, marketing and technology programs to independent luxury hotels and resorts. In March, they formed Preferred Residences, a branded membership and exchange program.

According to John Ueberroth, Preferred Hotel Group president and chief executive officer, Preferred began to research a link to the fractional field two years ago. Preferred contemplated hooking up with destination clubs in which people pay $300,000 to $500,000 for memberships, along with $25,000 to $30,000 in maintenance fees, to spend up to 30 days at a clip in luxurious villas all over the world. Several of these have gone out of business, however, and Preferred decided to pass even though “it's a decent concept,” Ueberroth says.

Nevertheless, there is demand for such a product. “There is an aging population from 55 to 80 years old that has money, grandchildren and time,” he says. “They travel a lot and like staying at nice places.” They also express interest in buying second and third homes at $2 million to $5 million.

After several destination clubs approached Preferred to no avail, Interval expressed interest in Preferred setting luxury hotel standards for its offerings, similar to ones Ritz-Carlton sets for its Residences. Private residence clubs, unlike fractionals, resemble longer-term timeshares, he says; stays are typically five weeks minimum and can last 12.

“We're looking at the very high end and major cities like Paris and New York, where real estate is very expensive,” he says. “Then there are ski areas, your Vails and your Aspens, and Cabo, Hawaii, St. Tropez, great beach resorts.” At least half offer golf; La Tranquila occupies the same subdivision as an 18-hole, Greg Norman-designed course; La Tranquila Litibu owners will receive preferential green fee rates.

In such locales, real estate is so expensive, prospective owners question the value of spending $2 million to $5 million — before property taxes and maintenance fees — on a place they use for only a few weeks per year.

Under the Preferred Residences model, they can acquire a place run like a luxury hotel that they can trade for a similar one in another upscale locale.

“We think there is a big market for that as land values become extraordinarily high in prime locations,” Ueberroth says. “And it's based on families traveling more.”

Interval's research gibes with Preferred's, says Dave Gilbert, Interval's vice president of resort sales and marketing. “It says a brand would be a very positive influence in buying a high-end fractional or private-residence product. We wanted to meet that need for independent developers looking for a branded program.”

Preferred Hotels & Resorts was a perfect fit, Gilbert says. In business for more than 40 years, it has a global network of four- and five-star properties and should appeal to developers eager to affiliate with a brand with an exclusive pool of inventory, he says.

While Ueberroth acknowledges today's dicy economic situation, folding Interval into the Preferred mix should help. “Say someone was going to sell a single ownership for $2 million,” he suggests. “If you divide it 12 ways, at $200,000 each, it's $2.4 million, and you have to make 12 sales rather than one. But every cost is a lot less and brings it within reach. If you own a second home, whether you go there or not, you have to have upkeep. Lighten that 12 ways, it's a lot cheaper.”

“We have some new benefits targeted to the upscale client for Preferred Residences, like an arrangement with an airport lounge program with 500 locations internationally,” Gilbert says. “In addition, Preferred has worked with its hoteliers to put together preferential rates. We've tailored benefits to the very affluent for this program.”

And there seem to be plenty of such customers, though “not as many as I'd like,” he says. “This product is aimed at the top five percent of household incomes, that $150,000- to $200,000-plus-range consumer.”

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