Grand Getaways

June 2007 Special Sections

On a trip to the North Shore in 2004, Bruce and Paulette Teigen learned about a new group of homes being built south of Two Harbors. The homes were part of Larsmont Cottages on Lake Superior, a new development featuring fractional vacation ownerships in which the couple and three other buyers could own deeded interest in a townhome set within a resort. For thirteen weeks out of the year, the Teigens could take advantage of a well-designed, fully stocked home on Lake Superior. “We put money down on a three-bedroom home on a gut feeling because it felt right,” recalls Bruce Teigen, who owns Teigen Paper & Supply in Rochester.    

The purchase might have been prompt, but Teigen had done his research on fractional ownerships long before the trip up north. By perusing business and trade journals, he learned that fractional ownerships were a smart way to invest in a vacation home without the hassles—or high costs—of a wholly owned second home. The Teigens also could make some money by renting the home when they weren’t staying there. But perhaps most important, a fractional ownership was something Bruce and Paulette could share with their four children and five grandchildren. “We’re building memories and a history,” the Teigens say. 

More people like the Teigens are turning to resort-based fractional and full ownerships of vacation homes as an alternative to buying a stand-alone second home or staying in a hotel because of the benefits, luxurious amenities, and value.

Ownership Options
Resort-style fractional and full vacation ownerships appeal to consumers for a variety of reasons. Fractional vacation ownerships, also marketed as private residence clubs when operated by luxury hotel brands such as the Four Seasons or Ritz-Carlton, attract those who want a luxury vacation experience for less than it might cost to wholly own a home.

Owning a fraction of a home in a popular vacation setting is not new. This concept started in Colorado ski resorts where purchasing a home was next to impossible given the exorbitant real estate prices. And in light of the fact that Americans only take an average of thirteen days of vacation annually, according to the World Tourism Organization, a fractional makes fiscal sense for many.

The fractional business model differs from a timeshare. Fractional owners have deeded interest in the home, which will appreciate just like any other real estate purchase, whereas with timeshares, only time is owned. The time allotted for staying in your home depends on the size of the fraction you purchase. For example, if you own one-sixth of the home, you can use it for approximately sixty days every year. Even owning one-thirteenth of a home gets you four weeks. The management company of the resort in which your home is located is responsible for ensuring that days are divided up fairly among owners. Some companies will even allow owners to trade time with affiliated resorts.

Another attractive benefit for fractional homeowners is that many property management companies will rent out your home during the time you’re unable to use it and split the rental revenues with you. A homeowners’ association fee covers maintenance, accessory and furniture replacement, and yard work, allowing for turnkey service. For an additional (and nominal) fee, the resort staff will stock your home with groceries or dock your boat prior to your arrival. The luxuriously furnished units, which can range from condominiums to single-family custom homes, feature modern, high-end appliances, finishes, and furniture. Combine these advantages with access to resort amenities, and it’s easy to understand why fractional real estate sales have jumped 219 percent since 1999, according to a study by Ragatz Associates.

Fully owning a home in a resort setting is another vacation alternative that’s gaining momentum. It shares all the benefits of fractional ownership; the main difference is that you are the sole owner who’s entitled to use your home whenever you want in most instances. Resorts will often feature both fractional and full ownerships to attract a variety of customers. Local Flair
Fractional and full ownerships span the landscape near and far. On a local level, Duluth-based Odyssey Development has responded to the demand for fractional and full ownership by offering opportunities for buyers in four northern Minnesota developments. Caribou Highlands Lodge on the Sawtooth Mountains features full-ownership vacation homes. Grand Superior Lodge, just north of Two Harbors, offers mostly full ownerships with several new fractionals in townhome or log cabin settings. Larsmont Cottages just north of Duluth, which opened a year ago, houses forty high-end units (thirty of which are fractionals) in a modern Scandinavian design. The same mix of units will be available at Trapper’s Landing Lodge on Leech Lake, Odyssey’s newest venture. The first six of the forty lake cabins open in June. All four properties will eventually feature classic resort amenities including pools, hot tubs, saunas, massage, boat rentals, entertainment, and restaurants, to which owners have full access. Larsmont will also host cooking demos and wine tastings for its members, while Trapper’s Landing is planning kids’ camps and an executive putting green.

The goal of each location, particularly with the fractionals, is to provide a piece of the Minnesotan dream, says Cindy Rodenhizer, Odyssey’s real estate marketing director. “The cachet of owning a cabin in Minnesota is something that everyone in the Midwest has growing up,” she says. “You don’t have to worry about painting, fixing the windows, or mowing the grass. We tell people to bring their ‘To Don’t’ list when they come up here. And because you own on lakeshore, your home will always hold its value.”

Another northern Minnesotan landmark offering a slice of Northwoods living is Kavanaugh’s Sylvan Lake Resort in Brainerd. Since 1981, the resort has offered full ownership of some of its units, with the owners and Kavanaugh’s splitting rental revenues. Now, the whole resort is moving to this concept. Fifty of seventy-five new and renovated townhomes and cottages, ranging from one to five bedrooms, are available for purchase. Homeowners can stay in their maintenance-free homes sixty days a year and have full access to the family-owned resort’s indoor and outdoor pools, tennis courts, two beaches, boat rentals, and paved trails.

The vacation homes are geared toward those who might not have months of time off but nevertheless want to make a smart investment, says Tom Kavanaugh, one of the resort’s owners. “There are a lot of people who want or can afford to own second homes, but they really can’t justify them,” he says. “They end up buying a place but only use it for three weeks out of the year. By buying a home here, they’re able to recover some of their expenses with the rent share.”

Just to the west, South Dakota’s Black Hills is an emerging market for luxury vacation options. Located between Deadwood and Sturgis, Apple Springs is a residential resort community that will eventually include 500 condominiums, townhomes, and single-family homes. Most homes, several of which are ready for occupancy, will be full ownerships, though a few fractionals will be available. Amenities will eventually include a pool, spa, restaurants, retail, a golf course, fitness center, stocked lake for fishing, walking trails, a 50,000-square-foot golf lodge and conference center, a wedding chapel, and amphitheater.

The concept for this type of development is new to the region, but the time is right for several reasons, says Dave Simpson, managing partner for Apple Springs. “The Black Hills have been largely undiscovered until recently,” he says. “Prices are definitely going up. The area has so much to offer in terms of beauty and access. We feel there’s a market out there for people who’d like to come to nicer facilities and amenities.”

To that end, Simpson is expecting that baby boomers from the Midwest, including the Twin Cities, who traditionally visit the area will be drawn to Apple Springs. “People are wanting to buy their piece of the Black Hills and have their family utilize it with the possibility of retiring here,” he says. “We want to create this very down-to-earth, family-oriented place.”

As the popularity of the Black Hills increases, the need to preserve sacred spaces becomes a factor in development. The desire to share the beauty of the area with others while using the land in the smartest way possible prompted Jim Farmer to found Tatanka Spirit, a twenty-six-home resort near Buffalo Gap.

Land and wilderness preservation are also at the heart of Farmer’s two other residential properties in the Black Hills, Canyon Rim Ranch and Lakota Lake Encampment. With Tatanka Spirit, Farmer hopes that the blend of full and fractional ownerships will draw like-minded people to the community.

“Our company was formed to help inspire a new kind of development: low-density, low-impact design that could be experienced by the most number of people,” he says. “The only way to really do that is to get more people using the same home. It’s another extension of conservation living.” A different architect will design each single-family home, ensuring an original look to each lot as well as a dwelling that makes use of the land on which it sits. Destinations Beyond Your Backyard
For those who want to vacation beyond the Midwest, plenty of options exist. The Villa Group offers timeshares, fractional, and full ownerships in their Mexico properties. Destinations include Cabo San Lucas, Puerto Vallarta, and Nuevo Vallarta, with Cancun and Loreto properties scheduled to open in 2008 and 2009, respectively.

The properties feature all the amenities expected from upscale oceanfront resorts: great views from private balconies, swimming, snorkeling, pristine beaches, spas, gourmet restaurants, and swimming pools. In the company’s Villa La Estancia developments, which are dedicated to full and fractional ownerships, owners can expect one-, two-, or three-bedroom suites that include spa bathrooms, luxury kitchens with breakfast bars, and high-end entertainment systems. Granite, travertine, and marble complete the villas’ elegant design.

Purchasing from the Villa Group makes sense for those who want regular vacations in Mexico with the option of trading time at other sophisticated properties, says José Castelló, corporate director of sales and marketing division for The Villa Group. “You’re going to freeze the cost of your vacation by buying real estate,” he says. “If you’re going to have vacation time for the next twenty-five years, chances are that the prices will go up.”

Those who appreciate the variety, locations, and comforts that a luxury hotel company provides but expect more than a standard room are turning to places such as Starwood Vacation Ownership, whose brands include Westin, Sheraton, St. Regis, and Luxury Collection.

Choose from the vacation ownership model, which are deeded one-week interests per year, or the fractional model, entitling owners to three or four weeks a year. Well-appointed, fully furnished residential homes are found throughout Starwood’s twenty resorts, including golf destinations such as the Westin Kierland in Scottsdale or tropical paradises such as the Harborside Resort at Atlantis in the Bahamas. Other popular locales include Myrtle Beach, Vail, Hawaii, Cancun, the U.S. Virgin Islands, and southern California.

Owners are automatically enrolled in the Starwood Preferred Guest program at a gold or platinum level and can exchange time among other Starwood Vacation resorts or hotels. These benefits, along with the typical amenities found in five-star resorts, create an appealing, no-hassle, and accessible lifestyle in enviable destinations. “Most of the locations we are in are extremely expensive to purchase a second home,” says David Matheson, vice president of corporate communications for Starwood Vacation Ownership. “Fractional ownership makes tremendous sense as you are only paying for what you use.”

No matter where you choose to purchase, you’ll likely see the advantages of fractional or full ownership immediately, as Bruce Teigen did. “I used to hear the horror stories from friends who own lake homes about how a storm would come in and knock down trees or how they would have break-ins,” he says. “I don’t want those frustrations. I want to drive up, unload the car, walk in the door, and start enjoying my vacation.”