Safety in Numbers

Vacation ownership has become a critical component of the modern resort, which is likely to have timeshare and might have fractionals and condominiums. And even if a hotel doesn't sit on the same parcel, there'll be one nearby.

Such developments do particularly well in leisure destinations, mainly because of the diversity of the components. According to Ragatz Associates, the total sales volume in the shared-ownership resort industry in 2006 was $2.1 billion. The breakdown was $476 million for fractional projects, $1.1 billion in private (whole ownership) residence clubs and $576 million in destination clubs.

According to the American Resort Development Association, timeshare sales reached a record $10 billion in 2006, with California, Florida and South Carolina alone accounting for $4 billion. More than four million U.S. households own timeshare, ARDA says.

These statistics suggest a healthy, expanding universe. At the same time, such developments are complicated and require consensus among various stakeholders.

When a resort expands, everybody has to agree on a whole complex of subjects. Coming together seems worth it for developers, owners and hotel guests. Hospitality veterans on various sides of this equation agree that such projects, if executed properly and consistent across their offerings, are relatively immune to the ups and downs of the greater real estate market.

Developers begin with a vision, gather financing, find the right parcel, build — and hopefully, sell out. As years pass and expansion plans take shape, the amenities and services may have to change to adapt to a larger complex. That's when consensus among the different constituencies must be reached.

In hotels that include private residences — something fairly common in resorts — homeowners' associations must be heeded. There can be disputes over hours of operation and the level of hotel services like housekeeping. Other possible areas of contention are staffing and amenities.

These are agenda items common to fractional, timeshare, hotel and wholly owned properties. And guests rule in mixed-use developments just as they do in a standalone hotel.

“The identity of a guest, whether of a hotel, a fractional owner or a whole owner, should be immaterial,” says Scott Berman, principal, hospitality and leisure practice, PricewaterhouseCoopers Miami. “It's very important that the developer create a design and a layout that envisions 100-percent utilization, meaning the hotel and other residential components run at 100-percent occupancy.”

Challenges arise when it's inconvenient for the owner of timeshare, fractional or condo to use hotel amenities such as spa or restaurant, “and the golf course is usually a drive away.”

Effective developers will distinguish the components to create exclusivity. At the same time, they must “think through” the movement of guests. “It's got to feel like one place, to feel seamless,” he says.

NOTES FROM THE VAIL FRONT

At the 292-room Vail Cascade Resorts & Spa, 10 different associations and boards representing various condominium complexes must weigh in on decisions, says Gregg Pate, managing director. At the Colorado Rockies property, maintaining upscale quality is the key concern, he says.

Besides the 292-unit hotel (10 units are suites), Vail Cascade has more than 160 units in its property management program; how many join in the rental program depends on the season.

Condo owners have access to the resort's spa facilities, Vail's shuttle services and a ski valet Vail Cascade offers so vacationers can store their boots and skis next to the lifts. “On the hotel side, we're primarily group-driven,” says Pate. “On the condominium side, we're the reverse: primarily families, and the condominiums receive group overflow.” Destination Hotels & Resorts, the management company, is spending $30 million to renovate the hotel, a former Westin, expanding meeting and dining space so “our mix should move to 70 percent group, 30 percent leisure.”

The biggest challenges? Labor and employee housing. “We actually lease employee housing units within Vail and will have about 70 H2Bs coming in,” says Pate. The appellation applies to federal Department of Labor-approved migrant workers allowed into the U.S. to work for four to 10 months.

“One of the benefits of the mixed use is to call our marketing and sales team and market both” hotel and condo, Pate says. Another benefits is that “when we get larger groups that overflow from the hotel side, it will overflow to the condominiums.”

Also competing for a piece of the Vail pie is Bachelor Gulch Village, comprising 400 private home sites, a Ritz-Carlton hotel with 180 guestrooms and suites, 23 private Ritz-Carlton Residences and 54 Ritz-Carlton Club fractional ownership units. According to Steven Holt, director of public relations, the hotel runs its own services, including an outpost of Wolfgang Puck's Spago and the Bachelor Gulch Spa; the Ritz-Carlton Club has its own general manager and there is a homeowners' association for the 23 private residences on the top floors of the hotel. “In addition, we are converting a portion of our guestrooms into residential suites which are wholly owned, condominium-styled residences that have kitchens,” Holt says.

Each “community” reports to the hotel's general manager, who also acts as liaison to the association representing the wholly owned private penthouse homes. “I'm not aware of any conflicts between the organizations other than internal discussions that go in any homeowners' association,” Holt says. Residence owners have full access to hotel amenities and services.

The Bachelor Gulch configuration would seem to appeal to Richard Ragatz, an experienced industry analyst who doesn't favor condo hotels unless the market has proven demand generators or a well-respected brand manages the project.

Meanwhile, Ragatz says timeshare works well in tourist destinations, particularly when it coexists with a hotel. “It's really a numbers game in the marketing process,” says the founder of Ragatz Associates. “If you have a 100-unit timeshare project, you have 5,000 intervals to sell and a 10 to 1 ratio of sales versus closes, so you need 50,000 sales presentations. If you're in an area with limited tourist flow, it's going to be difficult to generate that. It also works if there's an onsite hotel where you can generate sales prospects from the hotel.”

Fractionals work best “where prices for home ownership real estate are really high and there's a scarcity of such inventory,” he says. “You position a fractional in the marketplace as (representing) rationality and value so you can get into a really high-quality vacation home for a fraction of the cost, with better services and management.” Cities like Manhattan, Miami and San Francisco are good for fractionals, he says.

“Nine of 10 luxury hotels in the pipeline are parts of mixed-use development,” says Patrick Ford, chairman and founder of Lodging Econometrics. “It's seldom that you see in the luxury end of the business a free-standing luxury hotel. They're great opportunities for developers if they can get the land parcel, which is generally quite expensive.” In cities, fractionals are more common than timeshare, which is generally associated with “repeatable vacations,” says Ford.

Where mixed-use developments in destination cities are largely vertical, “what you might have in a resort facility is separate buildings, more spread out,” Ford says. Timeshare is “a little more of a midmarket type of purchase.”

ROMANCING THE TRAVELER

The notion of blending getaway and permanence in the same complex is taking greater hold, some say. They also note that putting together different kinds of lodging is a winning proposition for both developers and travelers.

“It used to be that a hotel owner saw us and our product as a liability in that if their guests became owners, they wouldn't come back to the hotel,” says Ed Kinney, vice president of corporate affairs and brand awareness, Marriott Vacation Club International. “What turned out is that an owner became a much more loyal customer and would typically use both facilities and be apt to come back more frequently as a guest.”

David Callaghan, vice president of resort sales and service for Interval International, says once operational challenges are overcome so the expectations of both owners and transient guests are met, mixed-use developments work well. “The transient hotel guest coming in for a three-night stay will have one level of expectation,” he says. Owners “have a vested interest in the property.” The management company must “effectively manage those relationships and have strong interaction and rapport with the owners.”

“When you have a hotel and timeshare or a hotel and fractional, the hotel can serve as a source for providing tours to parties that are interested in purchasing the timeshare or fractional product,” says John Lancet, associate managing director of the Miami office of HVS International. “Even during times of economic downturn, shared ownership sales have continued to grow.”

“Developers are realizing that by adding other uses, you're deferring risk,” says Tom Anderson, chief real estate officer, Wyndham Worldwide. Partnering with a vacation ownership company like Wyndham Vacation Club lends developers clout when they approach institutions for financing, he says, and the timeshare business gives “throughput” to the hotel.

“When you get into the operating side of things, there's an added layer of complexity around the give-and-take required to have a good marriage,” he notes. “You're looking for a high-level general manager who has the ability to understand both the owner's interest and hotel's.” The hotel is focused on maximizing net operating income. The measure of success for timeshare, meanwhile, is a profitable sales operation.

Such developments are “very attractive investments for owners,” Anderson says. “As timeshare gets to be more socialized broadly, the mixed-use concept is more prevalent in development.”

THE BIG IDEAS

Partner with a known brand

Developers considering building a mixed-use lodging complex should ally with a well-known management company, both for financial clout and for expertise.

Remember location, location, location

Leisure destinations like California, Florida, the Colorado Rockies and South Carolina have the scenery and market generators necessary for mixed-use developments stressing timeshare. Fractionals can work in hotels in tall buildings in gateway cities.

Hire a savvy manager

The hotel so frequently at the core of a mixed-use resort requires a particularly sophisticated GM who can reconcile differences between the property's “communities.”

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