Time-sharing grows up

Owning a second home – that quaintly rustic getaway by the lake or a stylish modern condo on the ski slopes – is a luxury few Canadians can afford. Latest figures indicate only seven per cent of Canadians own a vacation property of any type, leaving the other 93 per cent either searching the seasonal rentals or, failing that, trying to wangle a weekend invite.

Yet while vacation homes may lie beyond our means, they don’t necessarily lie beyond our dreams. It’s quite easy to imagine spending summers in opulent Ontario cottage country or winter weekends in one of Whistler’s chi-chi chalets, escaping the noise and congestion of city life, relaxing on the deck with a drink and magazine, waving to Goldie Hawn as she walks by – okay, wake up, dreamer. Unless your lottery numbers come up, it’s simply not going to happen.

But why not? Pat Storms, developer of eastern Ontario-based fractional ownership resort, is one of a growing number of developers across the country asking this same question. She claims exclusive vacation properties can be had at surprisingly affordable prices. And, as Storms looks out of her office window, across the ruggedly beautiful Canadian Shield landscape encompassing Mississagagon Lake, she can see the future of leisure property ownership going up right before her eyes.

“I’m offering a chance to people who would like to own a lakefront cottage but either don’t have the money (as high as $1 million in fashionable areas) or don’t want to make the commitment to caring for a second property full-time,” says Storms. “I want to make luxury affordable.”

Affordable luxury? To make this seem-ing contradiction come off, Storms is using an innovative real estate industry called fractional or shared ownership. Until recently, the concept of fractional ownership began with extravagant items like private jets, helicopters or yachts. Instead of owning the excessively expensive jet or yacht outright, you get together with a group of buyers and split the cost. In essence, you own a share – or fraction – of the item, usually split 10 or 12 ways.

Developers are now applying the fractional model to vacation property ownership, particularly in posh locales. Pat and husband, Dave Storms, who used to run the Twin Pine Resort in the Land o’ Lakes region (less then two hours west of Ottawa), decided to sell because fractional ownership suited the property best once they discovered business was dropping. After exploring their options, they decided building cottages on the former resort and selling them off using the fractional approach would bring the best return.

“It’s the evolution of the time-share,” proclaims Storms. At first glance, fractionals and time-shares do seem similar. You buy a block of time at a vacation property, which you’re entitled to use for an allotted period. There are minor differences: with fractionals, the unit is in a fixed location and is usually split anywhere from two to 13 ways, whereas with time-shares, the location can shift from place to place each year, and it’s often split up to 50 ways.

Fractional facts
The major difference, however, lies in ownership, control and risk (in the early development stage). When you buy a fractional, you’re actually becoming a part-owner in the property itself.

“Instead of owning the right to four weeks in a Florida condo [as in time-shares], fractional owners buy a one share of the property itself,” says Storms. You own the share in perpetuity and can sell it when you want, transfer it to family members or deed it to your heirs.

Upon purchase, you become part of a consortium of multiple owners, who then join a trust or not-for-profit association. The property is held in common and run by a board made up of the multiple owners, much like a condo association. And, like condos, fractional owners will be obliged to pay a yearly maintenance fee.
Storms’ Frontenac Shores development offers buyers three home models to choose from, with prices for a one-tenth share ranging from $59,000 to $79,000, depending on the style and fixed summer week. The maintenance fee (somewhere in the neighbourhood of $200 a month) covers housekeeping, grass cutting, snow removal, garbage disposal and housekeeping. It means you’ll never have to worry about the downside of cottage ownership, such as opening and closing, maintenance, annual repairs or upgrades.

Ownership of one share entitles you to occupy the cottage for five weeks a year, one fixed week in each season. Garth and Mary McLeod – first-time cottage owners thanks to the fractional concept – are looking forward to their first week at their newly purchased home.

“We had never even heard of fractionals until we saw the Frontenac Shores ad in our paper,” says Garth McLeod who, along with his wife, had never considered themselves cottage types.

But since both McLeods retired, apart from some part-time work and volunteering, they decided it was time to look into buying a vacation getaway not far from their Ottawa-area home. “At first, I was a bit hesitant,” says Garth. “If the development didn’t get off the ground, we were worried we’d lose our deposit.”

However, after having their lawyer look at the ownership agreement and meeting with some soon-to-be owners at Frontenac Shores, their worries were dispelled. “Anytime you invest, it’s a bit of a gamble,” says Garth. “But we’re convinced this is solid and we’re comfortable with the risk. We didn’t buy it as an investment but we can’t see the value going down.”

The McLeods decided on a two-bedroom Confederation Log Home with all the amenities, including granite countertops, stainless-steel appliances, ceramic tiles, outdoor sauna, satellite wide-screen television and wireless Internet.

Besides liking the idea of a home on the lake and its maintenance-free aspect, the McLeods were sold on the location. “It’s close to Ottawa. Plus it’s in a relatively underdeveloped area with a beautiful setting and spring-fed lake,” says Mary. “We’re looking forward to moving in.”

Fractional flaws
The McLeods’ enthusiasm aside, fractional living has not been an easy sell in Canada. Many prospective buyers are initially put off, either because of their unfamiliarity with the concept or perhaps subconsciously thinking it’s a time-share, a scheme that has long suffered from a dodgy reputation.

Another factor that may be inhibiting buyer interest is the substantial upfront investment. Most fractionals are in the $100,000 range, more in exclusive locales. Time-shares, on the other hand, come in much lower, usually a few thousand or more. And even with the big initial outlay, fractional owners still lack control of the property. In most developments, you cannot make upgrades or additions – even to the furniture – without the go-ahead from the rest of the owners. Also, while recreational property values are hot at the moment, it doesn’t mean they will stay that way forever. What happens when property values dip and some of your co-owners want out?

Because it’s a relatively new concept, potential fractional buyers should consult a lawyer who has expertise in the fractional field. It’s not a straight-up, party-to-party sale, and a knowledgeable lawyer will help navigate the unique and confusing framework, avoiding the danger zones and ironing out any concerns that may be found in the ownership agreement.

“The legal structure of a fractional project is complicated in that specific entitlements need to be documented along with traditional real estate sale terms to provide a purchase and sale agreement that protects the interests of both buyer and seller,” says Vancouver real estate consultant Dan Hill, who advises the tourism and hospitality industry in Canada.

Bert Krummrei, who is turning his popular Bali High Resort in Ontario into a fractional development called Seasons off Muskoka, understands why potential buyers are cautious about buying into a concept that’s relatively untested in the Canadian market.

However, he feels that with a little education, buyers will quickly recognize a good deal when they see it. “They’ll come once they see they are able to get the same quality Muskoka cottage experience at a fraction of the price,” predicts Krummrei. “And because everything is looked after for them, they can maximize their time pursuing leisure activities of their choice.”

Krummrei’s fractional development will eventually consist of 16 houses along 1,000 feet of shoreline on Little White Fish Lake. There will be three different styles to choose from with prices varying according to the model; a one-tenth share starts at $79,000, topping out at $100,000, plus monthly maintenance costs. This gets the buyer five weeks in the heart of the most desirable cottage country in Ontario.

“We’re offering people an affordable alternative in an area where waterfront property is scarce and financially out of reach for most families,” says Krummrei. Plus, he notes that fractional owners can rent their weeks to others or lend them to family members. As well, they can trade their weeks with other owners in the development or with international resort trading organizations.

According to Krummrei, once people become familiar with the concept, they like it. Developers see it as getting the most bang for their buck, selling a house fractionally for approximately double what they could realize from a single buyer. Fractional owners like it because it gives them a stake in the most sought-after locations, which they otherwise couldn’t afford. The local townships are onside because it adds new ratepayers to the tax roll. Even local cottagers, who were initially skeptical with the idea, are gradually coming around. Krummrei has made great efforts to speak to locals, easing their concerns over the additional traffic new cottages will bring and the effect it will have on property values.

“The only people who don’t like it are the banks,” laughs Krummrei. So far, major financial institutions are treading slowly, reluctant to either back fractional developments or finance individual buyers.

But Krummrei is convinced they too will change their tune, once the concept catches on and fractionals do in fact bring vacation luxury to the masses.