Fractional market’s crash doesn’t spook new Aspen firm
ASPEN – Expanding in the fractional-ownership real estate market appears to be a lost cause during the recession, but two sales and marketing veterans say they see opportunity rather than insurmountable challenge.
R.J. Gallagher of Aspen and Steve Laver of Vancouver, B.C., announced last week they have teamed to form Forte International to handle sales and marketing of “iconic” luxury properties in western North America.
The recession has pummeled the fractional niche so hard that it’s actually creating good opportunities, Laver said. There are a lot of unsold fractional interests throughout the country, including Aspen. Many developers have hit tough times.
“They’re at best stalled and at worst in some sort of ownership flux,” he said.
In some cases, lenders seized properties when the developers couldn’t pay off loans. In other cases, owners have remained solvent and in control of their projects, but they’re hurting and need revenue.
The bottom line in all cases, Laver said, is that “inventory needs to be moved.” The Forte International partners hope to build a firm that figures out how to move those units.
“You can’t sell it with the same old story,” Laver said. “It’s not simple times. It’s not order-taking times,” he added, referring to simply writing sales contracts with minimal effort like in the pre-recession days.
Laver said he brings connections to Forte. He has worked with more than 400 brokers around the world, and developed luxury projects for a division of resort giant Intrawest called Stories Places from 2004 to 2009. He then became president of a global sales and marketing firm called Playground.
Gallagher provides the creative spark for Forte. The big sales pitch in the industry is currently: “Prices have never been this low,” Laver said. That will soon wear thin. Gallagher is working on fresh marketing approaches.
“You can’t just sell square footage anymore. You’ve got to sell lifestyle,” said Gallagher, who founded Gallagher Sharp West, a marketing, communications and design firm in Aspen 18 years ago. The company expanded into sales a few years ago and landed the contract to market and sell the Residences at Little Nell, a fractional ownership and hotel project at the base of Aspen Mountain. Gallagher said it was time to dissolve Gallagher Sharp West, which he and his former partner did late last year.
Gallagher teamed with Laver, who had been a “friendly competitor” for the last decade.
Forte International took over the Residences at Little Nell (RLN) account from Gallagher’s old firm. It’s also marketing and selling ownership interests at Innsbruck Aspen and at a handful of other projects at North American resorts.
Gallagher said fractional buyers during the recession are shopping for lifestyle and emotional reasons, not for investments.
“I don’t think we’ve seen the bottom yet,” he said of sales prices. But it’s also clear that the right projects are still attractive, he said. While real estate prices have generally dropped from 10 to 35 percent in resort markets, Forte recently increased the asking price of an ownership interest for a three-bedroom unit at RLN from $1.25 million to $1.3 million, and sold it.
Despite the problems experienced at RLN – a significant number of original buyers are trying to get out of sales contracts – it’s also been phenomenally successful, Gallagher said. It accounted for 30 percent of all fractional sales in 2009, not just in Aspen but industrywide, he said. In other words, it dominated the industry in what was a tough year. The Real Estate Channel posted an online story Friday that said the number of sales in the fractional vacation market fell 44 percent last year, citing data from analyst Dick Ragatz.
Overall, about 50 percent of RLN interests have been sold, generating gross sales of $140 million, Gallagher said. RLN retains appeal because it is managed by the Aspen Skiing Co.’s Little Nell Hotel, a five-star, five-diamond property, he said.
Laver said the price floor for the fractional market overall will be established in the next six months. It will take another couple of years to sell the existing inventory, he said.
Forte International will concentrate on selling units at the projects it’s currently working with, Laver said. It will aggressively pursue new clients as the market recovers.
The firm isn’t exclusively into real estate sales. It’s also eyeing marketing opportunities in the hospitality and entertainment industries.