With the domestic real estate market in a slowdown and consumers weighing their options more carefully than ever, fractional developments are facing real challenges when it comes to marketing and selling their shares. The past year has seen developments in once-booming markets like Las Vegas, Miami and Phoenix dramatically cut back in scope—or fail entirely. And in an environment where home prices are falling by double digit percentages in much of the country, the deeded real estate offered by fractional properties may seem more like a liability than a perk.

But what about developments in perennial markets, like San Francisco? Are they immune to the challenges faced by fractional properties in more volatile markets? Halogen Guides recently visited two area private residence clubs, the Ritz-Carlton Club and Residences in San Francisco and the Orchard at Carneros Inn in Napa Valley, to discuss the implications of the current recession on sales at the properties.

The Ritz-Carlton Club and Residences

The Ritz’s fractional offering in the city consists of 49 units ranging from one to three bedrooms starting at $230,000 for a one-twelfth share, with annual dues starting at $11,000. When we visited the recently opened property in March, some work was still being done, but both the lobby and the residents’ lounge on the 12th floor were completed, and we were able to tour an operational unit. According to the club, who would not give us specifics on their sales numbers, potential buyers have been more cautious about signing on the dotted line than they had initially predicted, but they remain optimistic about the long-term numbers.

The club has taken the path of opening a limited number of operational units, and completing inventory only as demand requires. Smart move, considering the overhead that can be saved on upkeep and finishing for residences that are not likely to see immediate use.

The Orchard at Carneros Inn

The Orchard has taken a different approach to opening up their inventory. They opened all 17 of their two-bedroom cottages at once, and sold out a small number of introductory shares before implementing a price increase and opening up the entire inventory this year. The one-tenth shares now go for $300,000 with annual dues running $8,100. The Orchard has currently sold 20 of a total of 170 stakes, but their recent partnering with Timbers Resorts, well-known for its marketing prowess, and a national marketing campaign set to drop at the end of this month, are likely to result in numbers ticking up more quickly in coming months.

This fact could make now a good time to buy in for potential members, who will likely be able to take advantage of increased availability while owner-to-home ratio remains relatively low. New exchange options garnered through the new partnership with Timbers may also be a point of interest for those potential buyers weighing fractional ownership against destination club membership.

The Halogen Guides Take

It’s no surprise that in the current economic climate, even those buyers with the means to consider high-end vacation property during a market slowdown may be holding the purse strings a little tighter, especially when it comes to unproven investments like fractional ownership. With fractional developments often touting deeded ownership as the biggest perk of PRCs over destination clubs, fractionals can become a hard sell in a down market. But for properties in evergreen tourist areas like San Francisco, New York or Cabo San Lucas, the outlook is sunnier than for most. Our prediction? Fractionals will have to step up to the plate with better exchange options to compete with the lower commitment option of joining a destination club in this time of economic uncertainty.