Homework: What to Know Before You Buy or Sell in 2009…

With housing prices dropping across the country and throughout the globe, and options for second-home ownership becoming increasingly diverse, the real estate market is clearly in the buyer’s favor. Here, experts in a range of vacation-home fields, including condo-hotels, destination clubs, and fractionals, weigh in on what you need to know about buying—or selling—right now.

text by: Samantha Brooks

April 1, 2009

WHAT TO KNOW BEFORE YOU BUY OR SELL IN A RESORT COMMUNITY

Resort Community: Not every resort community falls into the same category or formula, but most are defined as master-planned communities with residences, services, and activities. Examples include Kuki’o on the Big Island of Hawaii and Spanish Peaks in Big Sky, Montana.

Jim Tinson, CEO of Hart Howerton. Hart Howerton is a full-service land planning, design, and development strategies firm with offices in New York, San Francisco, and London. Projects include Bachelor Gulch in Beaver Creek, Colorado; Kuki’o on the Big Island of Hawaii; Palmetto Bluff in South Carolina; Empire Pass and the Talisker Club in Park City, Utah; Hacienda in Los Cabos, Mexico; and Singita Resorts in South Africa.

Q: How is today’s market for homes in resort communities different from how it was a year or two ago?

A: The resort industry has, like all other facets of real estate and most of the world economy, seen a slowdown. The priority now for buyers is to understand the health of the ownership and financials of the community.

The focus on the people, or the "soft" infrastructure, is more important now than ever. Even if they are looking to spend less money, owners and potential buyers still expect the same amenities, high levels of service, and range of activities. It’s the little things—both tangible and intangible—that have the ability to make a big splash.

At many of our projects, we have environmental scientists on staff. We see everything from chefs managing mushroom-picking festivals in organic gardens to black-tie foundation fund-raisers to cultural and educational experiences. Experiential activities with educational, cultural, and historical influences and one-of-a-kind locations characterize the best places. For example, at Palmetto Bluff in South Carolina, my children can never wait to go back to climb the tree house. It’s simple things like that that people keep coming back for year after year.

Q: What are developers of resort communities doing to compensate for the current economic climate?

A: At a time when they have less control over revenue, developers are first and foremost focusing on the cost side of their operations. Then they are looking at the types of residences and accommodations that are still likely to attract buyers, including real estate at lower price points or smaller but well-appointed units. The key is to maintain top quality by cutting costs where people don’t see it, like reducing midweek staffing, but to still keep up a high level of service. One thing being felt is the pressure of resort facilities’ operating deficits in communities where there are both unsold inventories and fewer or no outside guests. These are some of the factors that have been the source for recent stories of bankruptcy at very high-profile communities. Meanwhile, the most popular and appealing parts of many communities are often among their least expensive, such as parks, trails, and protected open spaces—these are natural resources that function as amenities. And the corresponding soft programming to accompany them is important to maintain.

To generate more monthly revenue to cover costs, some clubs have created new membership structures. By lowering the initiation fee to attract more members, they’re increasing the number of people who pay monthly dues. New communities are now offering more flexible ownership structures that minimize the initial investment required, while still providing services. This is an incubator that has worked well in the past to lead to future sales when people have established traditions and have both the time and resources to upgrade to bigger properties. That is also why the most successful communities are those that have a range of residential types that can support a broad range of buyers. Places that can evolve with their residents, rather than seeing them move to a new community as soon as their kids get older, are better off. We are also seeing things like exclusive private communities looking to expand access to hotels, outside spa operators, or residential clubs, which would likely not have happened before.

Q: What should someone know about buying a home in a resort community right now?

A: All destinations have been hit. Less so than geography, it is more informative to look back over the past couple of years and see the types of residences and communities that have not fared well, because in many locations this decline started well before the recent economic crisis.

The most sought-after resort communities are in spectacular natural settings. They are built in a way that respects the land, history, culture, and traditions. It is important to preserve, protect, and enhance what it was that drove people there initially.

Fundamentally, we advise developers and buyers to seek one-of-a-kind environments. Smart buyers will look for how those characteristics of setting, real estate, and community are combined to create places that mirror the way they want to live and mirror the set of priorities they want to invest in.

Q: How do you think things will change in the next year or two?

A: We are spending a lot of time now with our clients thinking about who the buyers will be coming out of this recession and how they will want to spend their time and money. I believe this is already the case, but particularly coming out of this recession, decisions will be driven by lifestyle, as well as a community’s contributions to larger concerns—environmental preservation, the surrounding community, and smart and sustainable approaches to building, water, and energy.

We see premiums for truly unique environments, where open space and special natural settings combine with distinctive real estate to reach as much as a 30 percent premium over conventional projects. In many cases, less development creates more value and celebrates what is special about the land to begin with. Many developments we are working on are protecting large parts of their properties and establishing conservation areas that become places for everyone to enjoy. Looking ahead, buyers want to be immersed in settings that are at once educational, cultural, and fun. That is driving some of our clients to create resort living within cities themselves, such as Miraval Living in New York. At the same time, we see people that want to spend their time educating themselves in pristine natural environments, totally immersed in a setting like a private conservation-based island in the Pearl Islands of Panama or with African luxury camps like Singita in the Serengeti.

Q: What advice would you give to someone who wants to sell his/her home in a resort community right now?

A: First, if your property is not currently in a well-managed rental pool, and renting it out is an option, I would consider that. If you have to sell, you want to tap into sales/brokerage groups that are established at a particular community and have the deepest set of contacts. The best prospects are the current property owners within the area and their friends. The next target group is guests at nearby hotels. Many sales teams are incentivizing potential buyers to experience the community firsthand and also putting together packages that incentivize current property owners for referrals.

Hart Howerton, 212.683.5631, www.harthowerton.com