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What To Know Before You Buy Or Sell In 2009

This is an excerpt from a feature in the April/May issue of Robb Report Vacation Homes.

With housing prices dropping across the country and throughout the globe, and options for second-home ownership becoming increasingly diverse, the real estate market is clearly in the buyer’s favor. Here, experts in a range of vacation-home fields, including condo-hotels, destination clubs, and fractionals, weigh in on what you need to know about buying—or selling—right now.

What to know before you buy or sell in a resort community:


Resort Community —Not every resort community falls into the same category or formula, but most are defined as master-planned communities with residences, services, and activities. Examples include Kuki’o on the Big Island of Hawaii and Spanish Peaks in Big Sky, Montana.


Jim Tinson, CEO of Hart Howerton. Hart Howerton is a full-service land planning, design, and development strategies firm with offices in New York, San Francisco, and London. Projects include Bachelor Gulch in Beaver Creek, Colorado; Kuki’o on the Big Island of Hawaii; Palmetto Bluff in South Carolina; Empire Pass and the Talisker Club in Park City, Utah; Hacienda in Los Cabos, Mexico; and Singita Resorts in South Africa.

Q: How is today’s market for homes in resort communities different from how it was a year or two ago?

A: The resort industry has, like all other facets of real estate and most of the world economy, seen a slowdown. The priority now for buyers is to understand the health of the ownership and financials of the community. The focus on the people, or the “soft” infrastructure, is more important now than ever. Even if they are looking to spend less money, owners and potential buyers still expect the same amenities, high levels of service, and range of activities. It’s the little things—both tangible and intangible— that have the ability to make a big splash. At many of our projects, we have environmental scientists on staff. We see everything from chefs managing mushroom-picking festivals in organic gardens to blacktie foundation fund-raisers to cultural and educational experiences. Experiential activities with educational, cultural, and historical influences and one-of-a-kind locations characterize the best places. For example, at Palmetto Bluff in South Carolina, my children can never wait to go back to climb the tree house. It’s simple things like that that people keep coming back for year after year.

Q: What are developers of resort communities doing to compensate for the current economic climate?

A: At a time when they have less control over revenue, developers are first and foremost focusing on the cost side of their operations. Then they are looking at the types of residences and accommodations that are still likely to attract buyers, including real estate at lower price points or smaller but well-appointed units. The key is to maintain top quality by cutting costs where people don’t see it, like reducing midweek staff­ing, but to still keep up a high level of service. One thing being felt is the pressure of resort facilities’ operating deficits in communities where there are both unsold inventories and fewer or no outside guests. These are some of the factors that have been the source for recent stories of bankruptcy at very high-pro­file communities. Meanwhile, the most popu­lar and appealing parts of many communities are often among their least expensive, such as parks, trails, and protected open spaces—these are natural resources that function as amenities. And the correspond­ing soft programming to accompany them is important to maintain.

To generate more monthly revenue to cover costs, some clubs have created new membership structures. By low­ering the initiation fee to attract more members, they’re increasing the number of people who pay monthly dues. New communities are now offering more flexible own­ership structures that minimize the initial investment required, while still providing services. This is an incuba­tor that has worked well in the past to lead to future sales when people have established traditions and have both the time and resources to upgrade to bigger properties. That is also why the most successful communities are those that have a range of residential types that can support a broad range of buyers. Places that can evolve with their resi­dents, rather than seeing them move to a new community as soon as their kids get older, are better off. We are also seeing things like exclusive private communities looking to expand access to hotels, outside spa operators, or residen­tial clubs, which would likely not have happened before.

Q: What should someone know about buying a home in a resort community right now?

A: All destinations have been hit. Less so than geography, it is more informative to look back over the past couple of years and see the types of residences and communities that have not fared well, because in many locations this decline started well before the recent economic crisis.

The most sought-after resort communities are in spec­tacular natural settings. They are built in a way that respects the land, history, culture, and traditions. It is important to preserve, protect, and enhance what it was that drove people there initially. Fundamentally, we advise developers and buyers to seek one-of-a-kind environments. Smart buyers will look for how those characteristics of setting, real estate, and community are combined to create places that mirror the way they want to live and mirror the set of priorities they want to invest in.

Q: How do you think things will change in the next year or two?

A: We are spending a lot of time now with our clients thinking about who the buyers will be coming out of this recession and how they will want to spend their time and money. I believe this is already the case, but particularly coming out of this recession, decisions will be driven by lifestyle, as well as a community’s contributions to larger concerns—environmental preservation, the surround­ing community, and smart and sustainable approaches to building, water, and energy.

We see premiums for truly unique environments, where open space and special natural settings combine with distinctive real estate to reach as much as a 30 percent premium over conventional projects. In many cases, less development creates more value and celebrates what is special about the land to begin with. Many develop­ments we are working on are protecting large parts of their properties and establishing conservation areas that become places for everyone to enjoy. Looking ahead, buy­ers want to be immersed in settings that are at once edu­cational, cultural, and fun. That is driving some of our clients to create resort living within cities themselves, such as Miraval Living in New York. At the same time, we see people that want to spend their time educating them­selves in pristine natural environments, totally immersed in a setting like a private conservation-based island in the Pearl Islands of Panama or with African luxury camps like Singita in the Serengeti.

Q: What advice would you give to someone who wants to sell his/her home in a resort community right now?

A: First, if your property is not currently in a well-managed rental pool, and renting it out is an option, I would consider that. If you have to sell, you want to tap into sales/brokerage groups that are established at a par­ticular community and have the deepest set of contacts. The best prospects are the current property owners within the area and their friends. The next target group is guests at nearby hotels. Many sales teams are incentivizing potential buyers to experience the community firsthand and also putting together packages that incentivize cur­rent property owners for referrals.

What to know before you buy or sell a Condo Unit:


Condo-hotel— A hotel where some or all of the units are owned by individuals. those owners may agree to include their units in a rental pool for part of the year and in return share in the rev­enue generated from the rooms. owners also pay monthly dues for use and maintenance of the com­mon areas and amenities, such as pools, restaurants, the spa, and the lobby.


Jan D. Freitag, vice president of Smith Travel Research (STR). STR is the premier provider of hotel-performance data throughout the United States and the world.

Q: How is today’s market for condo-hotel units different from how it was a year or two ago?

A: The trend of condo-hotels started probably about six years ago. Developers realized they could presell the resi­dential portion of the project and use the proceeds of that to finance the bulk of the project instead of borrowing all of the money from the bank. This decreased the interest payments on their loans, therefore mitigating their financial risk.

That’s changed. Financing is a lot harder to come by now for both developers and buyers. A couple of years ago, there wasn’t a luxury hotel breaking ground without a residential element, but now the pendulum has swung back, and there are a lot of stand-alone hotels going on their own. There’s still a place for condo-hotels, but now the financial model of having to have the money from the condos in order to finance the hotel is pretty much dead.

Q: What are developers of condo-hotels doing to com­pensate for the current economic climate?

A: The ways a project is marketed are very different, and developers are prequalifying their buyers more than they used to. Developers are getting away from selling units to people who have the mentality that they will buy a unit, flip it, make a 35 percent profit, and then get out. The wave of people buying just to flip is gone, and developers are now interested in long-term owners. They’re looking for people who have a verifiable income rather than—to paraphrase one of the bankers—“just a pulse.”

Q: What should someone know about buying a condo-hotel unit right now?

A: It’s definitely a buyer’s market. You can strike bar­gains and get upgrades that you used to have to pay extra for. Developers are hard-pressed to find buyers, so you’re in the driver’s seat—leverage that for as much as you can.

In terms of financing, one thing to consider about a condo-hotel unit is whether or not you intend to put it into the hotel’s rental pool. If you’re not there all of the time, and your intent is to rent it, it might affect the terms of your loan. Also, buyers should not necessarily expect to make income on the property. In the case of Las Vegas, an area that has been hit extremely hard, the hotel market is suffering too. Some owners expected that their condo-hotel units would end up paying for themselves, in terms of covering the monthly mortgage, but if a project with condo-hotel units and regular hotel units is suffering, the hotel owner is probably going to be inclined to rent out his regular hotel units first to cover his own costs.

Q: How do you think things will change in the next year or two?

A: I’m definitely a believer that financing will become harder and harder to come by and the number of projects will slow down. The overleveraging of the American con­sumer has come to a halt. A lot of people right now are debating whether or not they should take a vacation in a hotel, let alone own a vacation home in a hotel.

Q: What advice would you give to someone who wants to sell his/her condo-hotel unit right now?

A: It’s hard to market the uniqueness of a condo-hotel unit since a lot of them can end up looking more or less the same, so you really have to market the amenities of the building. Price and location are important too—you have to consider the appeal of the destination. If you have a high-end product in a high-end location, it will be easier to sell. However, if you have the highest-end product in a middle-of-the-road place, it will be tough.

(Smith Travel Research, 615.824.8664, www.strglobal.com)

What to know before you buy or sell a Single-Family Vacation Home:


Single-family vacation home—A stand-alone, wholly owned residence located in a primarily second-home locale, such as aspen, Palm Beach, or Santa Barbara.


Rebecca  Riskin of Village Properties, an exclusive affiliate of Christie’s great Estates. Riskin has been the number one agent in dollar volume in California’s Santa Barbara Association of Realtors Multiple Listing Service for 1999, 2001, 2002, 2003, 2005, 2006, and 2008.

Q: How is today’s market for vacation homes, specifi­cally those that are not part of a master-planned develop­ment, different from how it was a year or two ago?

A: Several years ago everyone wanted to invest in real estate, and lenders made it easy for everyone to do so. It was a “get rich quick” plan for many people. They were buying on spec and selling them a year later for a profit. No one is buying anything for a quick flip now. Areas where vacation homes and primary resi­dences are indistinguishable seem to have been the least affected by the downturn in the economy. Here in Santa Barbara we have great weather year-round. Areas that are specific to destination and season—in other words, regions that offer only skiing in the winter or warm-weather sports in the summer—have been the most affected by the recession. People are licking their wounds—20 trillion dollars has been lost. It doesn’t make for a time when people feel like being extravagant anymore. Instead, buyers are tighten­ing their belts and spending on what they feel are neces­sities. I believe the country as a whole is rethinking the “more is better” or “bigger is better” idea and coming to the harsh realization that we have been a nation of excess. I don’t think buyers are feeling guilty about buying a vacation home; however, I do think that they are now looking more closely at what they “need” versus “want.”

Q: What are sellers of vacation homes doing to compen­sate for the current economic climate?

A: In terms of selling, there certainly has been a decline in buyers, and that has been reflected in pricing. In our market, home prices have come down anywhere from 10 percent to 20 percent. I’ve been told recent statistics say the median price for a home in Santa Barbara is down approximately 16 percent from 2007. The low end of the market (less than $1 million) was the first to feel the drop in prices. Along with the crash of the stock market last fall, the high end (more than $10 million) of the market has been virtually at a standstill. Asking prices have fallen 15 percent to 20 percent on average in all price ranges in the tony neighborhood of Montecito.

Q: What should someone know about buying a single-family vacation home right now?

A: If you’re not looking to make a quick profit and are planning on keeping the home for at least five years, then it’s an excellent time to buy. It has been years since there has been an ample selection of homes to choose from combined with motivated sellers and low interest rates. Even if prices continue to go down in 2009, there is such a limited supply in high-end areas that if a buyer finds a home he or she loves and plans to keep it for some time, then it is a good time to start looking. And, as always, the thing to look for is location, location, location!

Q: How do you think things will change in the next year or two?

A: I believe 2009 will see a continued softening of the market and that a buyer should focus on getting into the market this year while there is a selection of homes along with motivated sellers and low interest rates. Economists are predicting a pickup in 2010, and I believe next year we will start seeing a tightening up again in terms of inven­tory and seller motivation.

Q: What advice would you give to someone who wants to sell his/her vacation home right now?

A: It’s all about price! A seller can no longer look only to the recent sales as comparables, as there are so few of them. Sellers must price their homes in line with the competition and should look at active listings in a similar price range. Buyers are looking for motivated sellers and good deals or “steals.” A seller who wants to move his or her property should price the home at or below the best price in a com­parable home. The kiss of death for sellers in this market is to list homes at prices that don’t indicate their motivation. Choosing the right realtor in today’s market is more crucial than ever. In a falling market, time is money. Sellers simply cannot make the mistake of hiring realtors who don’t accu­rately price, or competently market, their homes.

(Rebecca Riskin & Associates, 805.565.8600, www.montecito-realestate.com)

What to know before you join a Destination Club:


Destination Club—Members pay an up-front deposit and annual dues—and, sometimes, other fees—for access to a club’s portfolio of furnished, multibedroom homes in locations around the world.


Adam Wegner, senior vice president and general counsel of Exclusive resorts and president of the Desti­nation Club association (DCA). DCA is a trade group that was formed by several destination clubs in 2006 to promote greater awareness of the destination-club indus­try and define and develop responsible best practices to serve as models of conduct for clubs. Current members include Exclusive Resorts, Quintess, Solstice, and Ulti­mate Escapes.

Q: How is today’s market for destination clubs different from how it was a year or two ago? 

A: The climate for virtually every sector of the United States is different today due to the macroeconomic condi­tions. In our sector, there are fewer clubs now than there were a few years ago. The ones that failed relied heavily on the expectation of future sales or gave their members unre­alistic promises, such as unlimited, anytime, and anywhere usage plans. When executed by an experienced management team, the destination-club model is quite robust. It is essentially the same model that has worked for many country clubs for years. Many who felt that investing in second-home real estate was a better path than destination clubs have had a change of heart. The lifestyle returns that come with destination-club mem­bership may seem more valuable now in light of the decline in real estate values.

Q: What are destination clubs doing to com­pensate for the current economic climate?

A: The years of 2005 through 2007 were high-growth years. Exclusive Resorts saw its membership base grow by nearly 80 percent over that time, and many other clubs saw rapid growth during these years as well. Growth across the industry slowed quite a bit in 2008, and, as a result, clubs are scaling back their marketing and sales efforts, while continuing to focus on delivering exceptional ser­vice and experiences. The best way for a club to grow and maintain its unique culture is for current members to pas­sionately refer the club to their friends and colleagues.

In terms of expansion, clubs certainly have slowed down their acquisition plans for new properties, as every­one has reduced expectations for sales growth. That being said, some clubs may continue to buy or develop proper­ties, and clubs that had purchased properties in projects that were under construction a year or two ago are now seeing them come to completion.

Q: What should someone know about joining a destina­tion club right now?

A: There are several factors that contribute to a strong, successful club, but when it comes to the number of mem­bers and homes, there is no ideal or exact ratio. A reason­able ratio is a function of multiple considerations,including days of access sold and actual occupancy. This generally equates to a maximum 6-to-1 member-to-property ratio if you assume a member has 60 days of access each year, or a 12-to-1 member-to-property ratio if you assume each member has 30 days of access each year. Also, actual occu­pancy is a very important consideration. Higher occu­pancy allows for a more financially sound club but risks member dissatisfaction if it is too high. We have found that an occupancy rate of approximately 70 percent strikes the right balance of these competing interests.

Some of the questions a potential member might want to ask include: What is the occupancy rate and is it expected to change? How many residences are owned and opened? What is the member growth from the previous year? Is there a waiting list to resign? What is the average time it takes to refund a membership deposit? What is the debt­to-value ratio of the real estate portfolio? What percent­age of the homes in the portfolio is leased versus owned?

Q: How do you think things will change in the next year or two?

A: Destination clubs will be in a slower period of growth. However, this market may provide good oppor­tunities for rebalancing. Clubs can expand in areas of increased demand or decrease inventory in destinations where they have had lower member demand. This market allows each club to consider member-usage trends.

Historically, resignation rates with destination clubs have been very low, generally between two and five per­cent each year depending on the individual club. People love the destination-club concept, but because it is deposit-oriented, some people have looked at their deposits and have found an economic need to resign their memberships.

Q: What advice would you give to someone who wants to sell his/her destination club membership right now?

A: Different clubs have different rules. People should carefully consider if they plan to continue to vacation, and especially in the style offered by destination clubs. They should carefully examine their vacation alternatives and evaluate the associated costs, quality, frequency, and more. If they feel they still don’t want to be a member, they should contact the club about rules for resigning.

(Destination Club Association, www.destinationclubassociation.com)

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