I’ve fielded calls this week from real estate developers in 4 countries that are considering offering their property inventory (luxury homes and condos) as fractional shares. It’s a great idea, but relies on very perfected execution. There is a ‘best practices industry’ structure - legally and strategy - that has worked in the past, but will require creativity and commitment to reach a shell-shocked consumer in today’s market. The real estate slow down (stop) is global. No market has been untouched. The hotter the market was before, the more need for developers to get creative and aggressive today.
Fractional and timeshare - are products that are ’sold’ not ‘purchased’. That means you have to commit to marketing and sales, actively.
My greatest concern is why sell to a consumer who cannot buy? And without a proper end loan financing regime, who wants to pay all cash today? I have not met that buyer in 9 months. If a consumer has cash, he will only part with it for an extreme deal or if the purchase can be leveraged to some degree.
Banks are turtling (going into their shells) and not lending on loans that must be ‘portfolioed’ to term, meaning held for 30 years with ability to be sold. Developers have tried to point out to be how strong their borrowers may be, which I fully agree with, but when banks are being faced with so many loan options to choose from and regulators demanding safety, it is impossible to expect that they will take any risk on a fractional loan, that is relatively less understood, and completely illiquid for the next 30 years - just for a .25% - .5% more yield. That’s the fact, I don’t like the fact either.
So, without financing, how do you sell fractional shares in anything? You don’t. Savvy developers are realizing that today is the past. You must step up and find a way to finance your own product. When the car companies wanted to sell more cars, or the furniture companies sell more furniture, they found another way to offer in-house, point-of-sale financing.
Vacation Finance is adjusting our business model to focus on helping the best developers - around the world - to evolve to have an in-house financing program, and at your control, not dependent on banks. We are working with developers to create secondary market compliant, yet consumer friendly and streamlined loan offerings with highly engineered terms.
Structured finance in not dead. It is just a brand new day of how the pieces are traunched out and the risk in a transaction is shared.
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