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David Disick explains the basics of presenting your fractional development project to potential sources of funding.


1.    Remember that your banker is a salesman and needs to sell his/her product (i.e., money) in order to generate income.  It's not a question of your "finding" money; it's a question of "persuading" the money that your deal merits financing.

2.    Show your banker the profit potential in fractional financing.

   
A.    Growth of the industry.

    B.    Reasons for growth

    C.    Performance in the current market

    D.    Recent favorable commentary

i.Forbes."With a convergence of the factors, all of which are favorable to the prospective home buyer, there may not be a better time to buy than right now.  It's a buyer's market, but like everything else in life, the bargain deals won't last." 

Sherpa Report."Barron's concludes that this is a great time to buy a luxury vacation home; prices are rising, but they are still quite low.  Or to quote the authors [of the recent Barron's article], ‘Two years after the worst of the financial crisis, the rich have dusted themselves off and resumed some serious discretionary spending'."

Wall Street Journal, July 23-4, page B-7, “Vacation Homes: Why It May Be Time To Buy." “The clouds hanging over upscale vacation-home markets are starting to lift.  While prices are still falling in most regions, the luxury segment is picking up, and brokers are reporting more inquiries than they have had in years."

Quoting the chief economist at Fannie May: “’ At the top of the market, particularly luxury homes, prices have proven very elastic, and have sprung upward quickly….' "

    "In general, properties situated in prime locations—on the water or near a ski slope—[is] selling well…."

Overseas Property Professional. "Shared ownership properties are going to 'rebound more quickly and strongly than whole-ownership second homes as the economy recovers,' according to data released this week by fractional industry research firm, Ragatz Associates”
   
E.    Show your banker the extent of potential financing business in the fractional arena—i.e., the scope of the market opportunity.

3.    Meet the competition for the investment dollar—show the superiority of your deal model. 

4.    Present a deal sufficiently large to attract institutional attention--$25 million recommended.

5.    Show an internal rate of return of at least 25%.

6.    Show what you have achieved already in your deal—growth vs. seed capital.

7.    Marketing and sales—the bottom line is that this is a marketing and sales business.  Show your specific operating plan with specificity, assumptions, your team experience and your monitoring programs to anticipate inevitable mid-course corrections.

8.    Re financing for consumers—document past performance and quality of fractional mortgage paper.

9.    Anticipate the hardball questions up front and set forth responses.

10.    Show specific assumptions for all material items in your business plan.