Fractionals: A Warm Spot in a Cooling Market

WHEN Robert and Jeannie Hidey went to Bachelor Gulch in Colorado three years ago, they figured they would ski five days and see their daughter who attended college nearby. The last thing they expected to do was to buy a second home.

Two floors of the St. Regis hotel in Manhattan are for fractional units.

It was their first time at the ski resort, and they liked what they saw: slopes free of thousands of other skiers, plenty of things do off the mountain and close proximity to Vail and Aspen.

So when they walked by a sales office at the Ritz-Carlton hotel where they were staying, they decided to go in. Ritz-Carlton was selling fractional shares of its 54 residences next door.

For 0,000, the Hideys bought a 12th share in a two-bedroom residence, which includes daily housekeeping service and lift tickets, for three weeks a year. If they cannot make it one year, they may exchange their time for stays at one of Ritz's three other fractional properties in places like Jupiter, Fla., or the Virgin Islands.

"We could not afford to buy a home there for all the time. It would be a waste of our investment money," said Ms. Hidey, 50, whose primary home is in San Juan Capistrano, Calif. "This is a long-term investment that we can pass on to our two daughters."

Fractional real estate, or shared ownership, is growing rapidly, increasing to .65 billion in sales last year for the United States, Canada and the Caribbean, up more than 30 percent from 2005.

Such properties appeal to buyers who want exclusive getaways but who may be unwilling or unable to purchase a second home they will use for only a few weeks a year.

Unlike time shares, fractionals carry a title of ownership and are marketed as high-end vacation homes, typically costing an average of 10 times as much as a time share.

"The younger generation of buyers is viewing it as an alternative to full ownership because of the ease. You're not paying for when the property is vacant," said John Melicharek, head of the tourism industry practice at the law firm of Baker Hostetler in Orlando, Fla. "It's become a convenient way to own a second home without all of the problems."

As of January, there were 249 fractional developments in the United States, Canada and the Caribbean, a 39 percent increase from 2005, according to NorthCourse Leisure Real Estate Solutions, a consulting group in Parsippany, N.J. According to Ragatz Associates, a consulting and market research firm in Eugene, Ore., that tracks the resort industry, 40,000 households, or about 1 percent of all households in the country that earn over 0,000 a year, have purchased fractionals.

Although sales of fractionals have declined in some areas, the overall housing slowdown doesn't seem to have had much impact on sales of fractionals in North America. (The market is still small compared with time-share sales, which were approximately billion last year, up from .6 billion in 2005, according to the American Resort Development Association.)

When buyers purchase fractionals, which are typically marketed to people who make at least 0,000, they are buying a portion of a condominium, a town house or a house and receive a deed to the property. A time share, by contrast, is shared among as many as 50 buyers, who pay for specific blocks of time and typically do not own a share of the property. Time is bought by the week and often costs between ,000 and ,000.

Shares in fractionals typically range from a quarter to a 13th, and buyers get as much as three months in their units. Depending on the project, owners get multiple weeks that are either fixed or rotate among owners. The units come furnished and carry annual dues, which can be as high as ,000, for maintenance, insurance, utilities and property taxes.

FRACTIONALS are now found from Midtown Manhattan to Colorado ski resorts to the Arizona desert. They often come with expensive appliances, finishes and furniture and have a staff who can stock refrigerators, tune skis and place owners' personal gear in their units before they arrive.

"When you're selling these things, you don't want it to look, smell or act like a time share," said Douglas O'Reilly, vice president for advisory services at NorthCourse.