Interval Ownership - Good, Bad or Indifferent?

Interval ownership, also called fractional ownership has been all the craze in many resort markets over the last few years. This includes Aspen and now also Snowmass. With the new Snowmass Basel Village slowly taking shape we can expect a wave of these fractional ownership condominium complexes hitting the market.

The discussion about fractional ownership models applies to almost all markets but is here demonstrated using the Aspen real estate and Snowmass real estate landscape.

First a quick look at what fractional ownerships is. A purchaser of this type of real estate will have a deeded interest in a specific condominium unit. It comes with the right to use the unit at certain times during the year, normally a 6 or 8-week interest. There are various models of time allocation, like fixed calendar weeks or owner’s selectable weeks on a rotation selection schedule.

If you take the prices for all fractions of a single unit you will arrive at the price for whole ownership. Experience has shown that developers are pricing these at 2 to 3-times the going market rate. It is like the difference between wholesale and retail. Anybody buying a fraction is paying retail rates, whereas full ownership buyers are paying wholesale rates.

In Aspen $1,500 per square foot would be a reasonable rate for a good location wholly owned condo. Fractional properties can range from $2,500 to $4,000 per square foot on a full year ownership basis. As you can se the developer takes most of the appreciation potential in up-front profits. The owners cannot expect to see any significant appreciation any time soon.

Real estate is unique in that you do not find two alike. Well, some times a condominium complex has more than one unit that are similar, but the owners have made them unique in their own ways by re-modeling and improving over time. The fractional units not only come in mass quantity, as every unit has 8 or so owners, they are also all uniformly in style. The fractional operator does not allow any divergence of the furnishings or finishes. What you get is a glut of equal offerings. Guess what, when it comes time to sell you compete with a whole range of completely uniform product and the only way you can compete is on price.

Sounds like the only way to sell is to be the cheapest offer in the house. Not a recipe for financial gain.

If you do not care for appreciation and want to make best use of your money to spend a limited amount of time in a resort like Aspen or Snowmass then fractionals are a good choice. No hassle ownership with all the amenities of a hotel are yours to be had as a fractional owner. Just do not expect to also make money.

After a 10 year career in derivatives trading Toby Munk relocated to Colorado to pursue a career in Aspen Real Estate.