The Private Co-Ownership Model

Old Friends revisited, part 2

“This may be a terrible thing to say,” comments Bill Bisanz, CEO and Founder of Elite Destination Homes, a high-end fractional co-ownership company in St. Paul, Minnesota, “but the recent problems seen in the destination club economy have brought quite a bit of business to us. Members who have been burned by other clubs are taking a second look at our practical, reality-based, transparent model of private co-ownership. We have not had the problems that larger, less-intimate clubs have -- access being a main one. If two families want the same week or two in Aspen or Turks, I just call one or both and ask if they could switch weeks… and the problem is solved. This is the advantage of many of the members knowing each other, and the company knowing the members also.” The inclusive, friendly nature of a real club seems pervasive in this company, a high-end shared ownership firm.

Elite Destination Homes’ model is based on co-ownership of the homes that the members can buy into. According to Bisanz, “Each deal is different. For example our current Turks deal (Villa Lynda) is $400k equity buy in (plus $300k financed) for an 8-week interest. This pricing is very similar to our current Paris deal (Paris Saints Peres). We also have a couple of other items that are $200k equity buy in. It really depends on what the member wants and how much he or she will use the residence."

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Elite Destination Homes creates small, private (usually two to five) partnerships to own extraordinary vacation homes in some of the world's most desirable and exclusive destinations: New York City, Paris, Turks & Caicos, Los Cabos, Florida and Colorado. Membership is by invitation only.

The model and idea of co-ownership, an arrangement where several individuals or families co-own and share use of a vacation home or condo, is becoming more popular, partially due to the flexibility of usage. There are two basic methods of allocating usage rights in vacation home co-ownership arrangements. In the “Usage Assignment Approach”, each owner is assigned the exclusive right to use the home during a specified number of days, weeks or months each year. The usage periods can be fixed (such as “the month of February” or “the first two weeks of February and July”) or variable (meaning they are selected each year based on a rotation system adjusted for holidays and seasonal variations). During each co-owner’s assigned usage period, he/she can live in the home, allow family and friends to use it, rent it out (and keep the rental income), swap it, or leave it empty. When the Usage Assignment Approach is used, the purchase price of the home is generally shared among the co-owners based on the amount of usage allocated to each co-owner. When usage periods are permanently fixed, price allocation may also be influenced by the quality of each owner’s assigned usage dates.

The second basic model for allocating usage rights is the ’“Pay-To-Use Approach." In this arrangement, co-owners pay a pre-agreed “usage fee” for each day or week of usage. The usage fees, along with any rental income generated if the home is also rented to non-owners, are used to pay the expenses of ownership. When the Pay-To-Use Approach is used, the purchase price and ownership of the home can be divided based on what each co-owner can afford, their investment goals, or any other criteria the group finds useful, but purchase price and ownership need not have any relationship to usage.

There are a large number of variations and hybrids on these basic usage rights allocation models. However, in all cases, the popularity appears to be growing, as the economy and many destination clubs seems to be in neutral or declining. Stay tuned.