Brokers and developers alike yearn for a fondly remembered time when they rolled out of bed, casually pushed a rehashed advert out into a marketplace – breathless in its haste to purchase anything near a beach­ – and watched the sales roll in. They didn’t have to build it, and in some cases, even get the permits. A half decent CGI of a glass and concrete edifice and a few virtual bikini-clad beauties scattered around the concept pool was all it took.

Can it only be 18 months ago when this would be enough to sell out a resort? Many brokers and developers (some now sadly departed) yearn for those fondly remembered halcyon days, when to stick ten percent onto the purchase price and then pay it back as a ‘guaranteed rental return’ was what passed for sophisticated product design and marketing. We can hope (rather than expect) that some now look back with embarrassment at their lazy thinking, but a quick glance amongst the adverts show that many still cling to these outdated models. We have also seen that no developer and no broker is too big or too successful to fail, so understandably those still looking to purchase overseas property are nervous, especially of off-plan projects that promise much but may never even break ground as they scramble for bank finance.

Against this background we are seeing the emergence of a few companies who are taking advantage of the situation and surging ahead. Take Best Group, for example, who reported a profitable 2008/9 with turnover up by over 70 percent. Or what about the Fractional Life site, which is exceeding one million hits per month?  Something is changing in the industry, and while some brokers and developers cling on, there is a whiff of change in the air. These pioneers are starting to make some real noise, and given that they stand out so starkly against a background of uncertainty it is hard not to listen.

Opportunities
Brad Lincoln, CEO of Best Group, believes that what has given them the edge is that rather than worry about the economic downturn, his company has been able to see within the changing circumstances the opportunities and use them to develop products that meet the needs of today’s investors and property buyers. “Some eighteen months ago we realised that in a fear driven and recession hit economy, investors who are seeing capital values collapse will be looking for safer projects that deliver a yield driven by genuine performance rather than optimism.” It is this type of analytical thinking that has helped the development of products such as the Emerald Monkey resort on a Caribbean island off the coast of Panama. This offers investors a low market entry value, a yield based on genuine operational performance from a proven brand, and even interest only finance for the purchase.

“Panama is one of the few economies seeing ongoing significant capital investment thanks to the doubling of the capacity of the canal, largely financed through funds from China. The result is an emerging middle class hungry for the country club lifestyle. In addition, the less stable political systems in the region see Panama as a safe haven, and dollars are pouring into the country from Ecuador, Venezuela, and other states,” explains Lincoln.  The Emerald Monkey project takes advantage of this, and by bringing in Preferred Hotels as the operator, gives the purchaser looking for investment or lifestyle returns immediate confidence about the viability of the project.

One of the keys to this and other interesting opportunities, such as the newly opened Carlton Savannah business hotel in Trinidad, is the understanding that the valuation of a resort or development in which the return is an ongoing yield is far removed from the old ‘cost of development, plus land, plus 30 percent’ calculation which developers have previously employed. Sophisticated investors understand that while the physical asset underlines the purchase, the real value is in the lifestyle or rental incomes that these assets deliver over time. Best Group in particular is leading the way in helping developers and investors understand how this applies to their properties.

The results are impressive. Occupancies in the resorts are up, driving down management costs and making the spas and local amenities pay for themselves, as well as driving rental income to owners. The buyers are taking advantage of working with the resort operators to allow them to take their returns from this in vacations this year and income the next as they flex their use of the property to fit their own changing requirements. Lincoln is keen to make it clear that this is not a one-size-fits-all solution: “Some people label what we do as fractional ownership, and it is true that we often allow investors to share assets to make the most efficient use of their money, but really what we do is even more innovative, as we think of purchasers as part of the funding solution for a development, allowing them to benefit from the returns that would normally go to banks or larger private equity firms.”

Low entry levels
As a consequence, through models developed by Best Group and those like them, we are seeing entry levels for investors down as low as US$35,000 for those who want to live a genuine luxury lifestyle a couple of weeks each year, who don’t want the risk of spiralling management costs, and instead who look forward to a rental cheque dropping through the door each quarter. Where some have lost out through the lack of credit availability, those who have seen it as an opportunity to step into the gap left by the banks and instead of settling for one or two percent interest on their cash, have seen returns exceeding nine and ten percent. Small wonder that following their win in 2008, Best Group have again scooped the Overseas Living Award for Best Fractional Company for 2009.

Perhaps 2009 is a year that will see the emergence of shared ownership of property, allied to solid operating models as the way to buy overseas at a fraction of the price but still with the lifestyle returns we all dream of.