Firm Foundation

First Greeted With Skepticism, the PRC is Now Thriving

Name a top beach, golf, or mountain destination and chances are it already has a private residence club, or will soon. The clubs have become even more popular in metropolitan areas. Today, more than 75 PRCs exist across North America, from Bermuda to Manhattan to Cabo San Lucas, and new variations on the club theme seem to appear nearly monthly on the market. Yet for all its popularity, the private residence club had a very shaky beginning.

In 1990 the 'private residence club' was no more than an idea in the mind of Steve Dering, owner of a Park City, Utah advertising and marketing agency. Dering had begun thinking about the high relative cost of second homes in the neighboring community of Deer Valley. In the early 1990s the average second home in Deer Valley cost anywhere from $500,000 to $6 million, and was usually occupied only four to six weeks each year. Buying a second home in Deer Valley was both impractical and extremely expensive.

Dering identified the need for an alternative option and found that by creating a member-owned residence club he could afford the vacation home owner a real estate ownership price proportionate to his/her use. This practical alternative to whole ownership of a second home appealed to consumers. Dering had discovered a burgeoning market of "second-home buyers that could see more value in a ski-in, ski-out club that was as luxurious as a custom home and satisfied their vacation time requirements, but offered more amenities and services with no maintenance hassles."

In 1991 he moved forward with his plans to develop the Deer Valley Club (DVC) and spent the next several years ironing out the details of a successful PRC infrastructure, from reservation systems, to operations, to marketing strategies and price points. The sell-out of the Deer Valley Club in the mid-1990s was a triumph for the PRC industry.

PRCs took off in the upscale mountain communities of the western United States, spreading to Snowmass/Aspen, Steamboat Springs, Sun Valley, Vail, Jackson Hole and Lake Tahoe. Owners of these ski-in, ski-out residence clubs were thrilled with their new, worry-free ownership. They could be picked up at the airport, have groceries waiting for them upon their arrival, and leave their ski gear at the club after each vacation. Jeff Groth, a member of Steamboat Spring's Christie Club summed it up, " we have no worries, when we come here we are truly on vacation."

It was only a matter of time before PRCs moved south, to world-class beaches and golf courses-from Mexico, to the Caribbean, to Florida and Arizona. Club Quinta Real in Huatulco, Mexico provided the perfect escape from cold Utah winters for member Hans Fuegi. He had traveled extensively throughout Mexico, but Club Quinta Real afforded him the option to own real estate in Huatulco, which he described as his "favorite beach destination…beautiful, uncrowded with a wonderful variety of activities." PRCs were quickly filling a void within the resort industry; they created the option for people to own a luxurious, yet affordable vacation home in some of the most beautiful places in the world.

Developers

As the PRC industry grew, the developers diversified as well. Initially, the PRC industry attracted small individual entrepreneurs who recognized the economic upside of a fractional resort development. These developers were the first to create stand-alone PRCs, such as the Deer Valley Club in Park City, Teton Pines in Jackson Hole, and Christie Club in Steamboat.

In the mid to late 1990s, established resort developers began creating real estate fractionals as a component of planned resort communities. Resort developers capitalized on the complementary relationship between a PRC and a 5-star hotel; they could achieve maximum efficiency at minimum cost when all users and owners shared a common amenity base, and the hotel manager doubled as the PRC manager.

In addition to resort developers, brand-name hospitality companies, such as Ritz-Carlton, Four Seasons, and L'Auberge started developing residence clubs. These have done quite well in the past five years, for they offer all the benefits of fractional ownership properties with five-star perks. Furthermore, consumers are less hesitant to purchase club ownership with a brand-name hospitality company such as the Four Seasons. The Hudaks, members at the Four Seasons Aviara in La Jolla stated that "Four Seasons certainly lived up to their excellent reputation of first-class treatment and professionalism." It comes as no surprise then, that the Four Seasons has four active fractionals and several others in the works.

Industry Trends

Extensive research done by Hobson Ferranini Associates and Ragatz Associates forecasts a bright future for the PRC industry. According to Hobson Ferranini Associates, "a confluence of demographic and economic trends had created a growing market for second home and resort development." Currently, there are over 3 million income-qualified households that do not own second homes. Furthermore, the baby boomer generation is driving a growing demand for second homes. This is encouraging for the PRC industry, as fractional ownership overcomes the majority of reasons people hesitate to purchase second homes: a large capital investment in relation to use, concerns about maintenance, and problems associated with renting.

The growth of the PRC industry has been rapid. In just over ten years it has evolved from an idea into the hottest new trend in resort real estate. Compared to other segments of the resort industry, private residence clubs make up a small piece of the pie. However, as baby boomers begin hitting their peak earning years, the PRC industry is be primed and ready to meet the demand. It appears that the Private Residence Club Industry is young, vibrant, and here to stay.