Gordon Pierce, Chairman of Resort Design Associates International, gave the following speech at the American Resort Development Association National Convention in April of 1999. Our design of the Austria Haus Club and Hotel was honored with the 1999 Gold Award for Resort Architecture at this convention.

"Let me start out by saying that I am very pleased to be a part this panel today. I’m certainly joined by some well-respected colleagues in our industry."

"I have only been involved in the high-end fraction sector for about one-year. There are few of us right now but I suspect that number will grow soon. My experience, then, is limited. However, according to the principle of supply and demand, I have ended up on this panel. I’ll do my best to give you your money’s worth."

"Let’s begin with a definition of terms. There are several types of fractional offerings on the market today. The American Ski Company is currently selling a quarter-share at their Grand Summit Hotels in several of their ski resorts. This quarter co-ownership provides use, rental and exchange through RCI. Also, homes are being fractionalized and marketed in some locations. There are also some timeshare developers that are selling multiple weeks or point packages that can be considered fractionals."

"The fraction that we are involved in is what we call a "private residence club". That phrase being coined in Park City, Utah with the opening of the Deer Valley Club."

"A private residence club is a facility with any number of villas, luxury suites, or condominiums that are sold in a certain fractional ratio. The ratio may be 4 owners to one unit or 7 to 1 or 12 to 1. The ratio typically being determined by anticipate use patterns of the target audience."

"A member of a private residence club, then, shares ownership of a specific unit under a club reservation agreement, which permits equitable distribution of use to the members. The reservation guidelines, at our clubs, allow for guaranteed usage in two prime seasons, winter and summer, with space available usage at any time of the year. Reservations are determined by a rotating priority system, which insures that the most desirable times of the year are distributed equitably among the members over time."

"For example, at our Snowmass Club, memberships are sold at a 7 to 1 ratio. For thirty condominium suites we can sell 210 memberships. Members may reserve 2 weeks in the ski season and 2 weeks in the summer season each year according to the priority system. The remaining time is accessed through space available reservations. So, 4 weeks are pre-reserved, times 7 members, equals 28 weeks. That leaves 24 weeks open and available to membership for short notice getaways for a day or a week. If all members used their time equally, one member would enjoy 7 weeks plus a couple of days. Typically, however, member use is not the same, some use the club 4 weeks and others 12 weeks. This reservation concept is akin to an equity golf country club where a member will pay the same membership price and yearly fees as any other member. However, he or she may tee off only a few times where another may tee off everyday. The opportunity is equitable with the reality left up to the members discretion. This concept is readily understandable and acceptable to our target audience. They are affluent, middle aged with mature families and probably country club members."

"The accommodations at a private residence club are spacious and well appointed. A two bedroom at Snowmass boasts 1500 sq ft while the three bedroom is close to 2,000 sq ft. The club provides an array of personalized service from private airport pickup to ski tuning. These services are free of charge as they are covered in the yearly membership dues. A club membership in Snowmass will average $250,000 with a yearly maintenance fee of approximately $7,000."

"It is certainly considered one of the high-end private residence clubs in the fractional sector."

"Now, there has been ongoing debate among those of us on the high-end fraction side and those in the general timeshare end of the industry."

"Is a private residence club a timeshare holder or not? Is it simply a timeshare on steroids or is it a new kind of product emerging in a new industry?"

"There are certainly some differences in the reservation system and number of owners per unit. Jeff Stern can tell us, legally, if these fall under the category of timeshare. Developers can say that the typical cost of the facility is much higher than the typical timeshare condominium and therefore in its own category. All of these may support the case for or against private clubs vs. timeshares."

"I would submit to you that it simply doesn’t matter. The only thing that counts, in my opinion, is the perception of the purchaser. So the question is, do they think it’s a timeshare or not. If they do see it as a timeshare will they buy it?"

"The assumption has been that most individuals in this target audience do not want to own timeshare. We, in the timeshare business, have historically had trouble getting the affluent to our presentations. They have not responded well to our attempts. Hence, the conclusion, that they don’t want timeshare and subsequent positioning of the private residence club as a non-timeshare."

"I think there is more to it than that. I believe that the co-ownership of resort property is getting more and more popular and makes more sense to more people as time goes on. Even to the very affluent. Especially appealing to this group are the social aspects of the private residence club along with the feeling of exclusivity, a natural result of a quantity and the cost of membership."

"But, to me, the most significant difference in private residence clubs and the greater timeshare industry is our sales and marketing methodology. In other words, perhaps the very affluent haven’t wanted to go through our sales process more than they haven’t wanted our product."

"Please allow me to point out to you that I have spent 15 years of my life marketing and selling a variety of timeshare products. I’ve employed the same methodology as everyone else and I’m not ashamed of any of it. Nor would I criticize anyone for it. I think you do what works and brings you the greatest return. I have learned that some techniques or approaches work better than others for some groups of people."

"As stated earlier, the target audience for the private residence club is affluent. $150,000 per year income and higher, middle-aged with grown families, has a great deal of leisure time and may own or can certainly afford to own a luxury second home in the location of their choice. This group does not respond to telemarketing, premiums, 90-minute presentations and first day incentives. They perceive these tactics to be high pressure. Knowing that, different strategies have to be employed. Since the Snowmass Club is my experience, I will use it as an example to illustrate the strategy adopted."

"Our market research and analysis told us that the cost of real estate ownership in Snowmass/Aspen is very high. Local realtors made it known that they had many clients that wanted to invest in the area but had trouble justifying the price. The average home selling for around $3 million. We also knew that there were thousands of repeat guests at the Aspen Ski Company’s hotel operations. These and other factors led us to believe that there was some degree of pent up demand. Going down that road, we prepared for and invited the local realtors to participate in a private launch to preferred clients of the SkiCo and the real estate community. We refused to take any reservations until a specific time on a specific day. Urgency was created by the invitation only approach and a limited supply of memberships at launch pricing. The response was overwhelming and beyond our expectation."

"On the same day we opened our off-site sales gallery which is a simple storefront in downtown Aspen. We also deployed club ambassadors in strategic locations throughout the area. These ambassadors are the equivalent of OPC’s. However, their mission is different. They are not allowed to invite visitors to presentations and they have no premiums to offer. They do invite people to apres-ski parties at our galleries. Visitors may come and go as they please. No presentations are made at these functions. It’s simply a reception to introduce the club. Salespeople act as hosts and make appointments with interested people. This effort, as well as follow-up on our mailing and the continued participation of local realtors has created almost as many reservations as the initial launch."

"Our ongoing sales efforts promise to be successful as well. We offer no sales incentives for today’s business. We expect multiple appointments before the close. A great deal of business being finalized on the telephone once a visitor has returned home. Urgency is created by predetermined and published price increases and the limited supply of memberships."

"I should mention here, the $26 million in reservations for memberships accepted in the first 40 days of the project opening are refundable deposits. They will not become hard, or nonrefundable for several months. We have the challenge of holding these reservations till closing. So our apparent overwhelming success should be taken with a grain of salt. However, even with unusually high fall-out, the volume created by a high average sale and the lack of premium and tour generation costs can drive marketing costs well into the low double digits. Sales commission costs are, typically, 8 to 10% including administration. So the range of sales and marketing costs, depending on the resort, is 16 to 28%."

"With the lowered sales and marketing cost associated with private residence clubs, the developer is free to invest more in high quality product. The consumer pays a more reasonable cost for the product and enjoys the benefits of country cub vacations and equity. Loans made on these purchases are typically very strong due to the financial demographics of the buyer. The community retains a loyal visitor and is the beneficiary of increased spending in the area as is the case with general timeshare. All in all, it produces a win-win situation for everyone involved."

"In order to insure sales and marketing success in a private residence club, the same simple guideline applies as general real estate:

"Location, location, location."

"It begins with the proper choice of location. So far, PRC’s are site specific and require demand for the location without regard to the ability to exchange. So where you plan to employ your marketing strategies will determine how successful they are. A private residence club site should be in a mature resort community, it should be in an area where real estate prices are high and going up, and it should be readily accessible to major feeder cities. Ignoring these three basic requirements will produce trouble in sales and marketing."

"Another poor choice is what I call the "if I build they will come" Syndrome. Just because it’s big and beautiful and exclusive doesn’t mean they are going to buy it. A classic mistaken assumption is that the product will sell itself. It’s true that it should look seamless and easy. But without the proper preparation and structure it can easily spell disaster even in the most desirable location."

"The private residence club sale, as I hope you are grasping, is not a timeshare sale and it is not a real estate sale. It’s somewhere in the middle. So far, realtors on their own, have had a very difficult time selling a club due to the intangible product sales and some real estate knowledge seem to fair the best."

"We recommend a sales organization made up of professionals with the ethic and culture of relationship sales. This does not preclude timeshare salespeople as long as they can adapt to the no our culture and a softer approach. Also the need for continued follow-up can pose a problem for the typical timeshare salesperson. However, if they do adapt, they can be some of the best, because they have been trained to sell and close."

"To assist the local real estate community in sharing their valuable leads with the club sales organization, we recommend a designated individual on the sales staff that is dedicated to assisting in outside broker sales. That person should be well compensated and available to the real estate community at all times. This way, the continued participation of realtors and the quality of their reservations and sales will be insured."

"The typical sales force consists of 3 or 4 sales professionals. If appropriate, a local marketing staff of 4 to 6 ambassadors. A quality director, good office staff, of course, a killer advertising and design firm or in-house department and your on your way."

"The present reality of private residence clubs is the site-specific resort addressing demand in the market for one particular location. In the near future, we see that changing. PRC’s will develop as multi-site club systems with freedom to move within he club from location to location. Even the affluent want variety. This will bring challenges in the reservation systems that characterize the private residence club. However, someone will figure it out."

"As the first step towards that, a high-end private exchange system will develop. This may or may not be associated with the major exchange companies. The concern here will be trading like high quality for like high quality. Conceptual plans for that system are under discussion now."

"Big hospitality companies will and are planning entry into the high-end fractional market. Motivated by the same benefits of the timeshare/hotel component formula that brought so many big names into the timeshare business."

"Fractional developers now should seek alliances with these larger hospitality groups. In the next five years, brand equity and diversity of location will rule. Competition for the high-end market will get tough and will create product and service tiers to address a wider market. Those who are strategically allied with the right group will flourish."

"All in all, the outlook is bright and promising."

"Thank you."