The Future of Real Estate, Part II

In the September issue, we reviewed the extent of the damage to the resort real estate market as shown by the 2010 Kelsey Norden Resort Real Estate survey. Now that all the data have been analyzed, we can revisit the key questions: what is the state of the real estate market? Who's buying, what do they want, and how are they going to get it? And, more importantly, are these changes long-lasting?

In September we reported that, while smaller, there's still a pool of buyers out there, and an emergence of a younger buyer. Real estate pros believe prices will continue to be discounted 30 to 40 percent for the next two to three years, to move existing inventory, yet consumers still don't understand the depth of this discounting.

Buyers, for their part, are budgeting more carefully. They are willing to trade down on unit size and services, and exclusivity is not as important as in the past. Buyers simply won't accept high carrying costs, in particular association and management fees. And they are seeking second homes, not vacation homes. They intend to use these homes often, to share quality experiences with family and friends.

We wanted to explore and test some of our initial conclusions by applying a variety of filters to the data. One of the most notable findings is that the existing ownership group, the prospect group, and those willing to buy in the next two years are each split evenly between those over 50 years of age and those under. The younger set is here: they own, they are interested, and they are buying.

But they want different things. Some of the differences are the result of normal life changes. The older prospect set is more interested in life-long learning and the arts, for example, while the younger set prefers outdoor education and children's programming.

Here are a few of the more specific findings, along with verbatim quotes from respondents.

What motivates near-term buyers? Two characteristics surfaced among those interested in buying with the next year or two: a distinct attitudinal shift, and better access to cash. The "want" expressed by this group hit upon a "need" to prioritize time with family and friends. While they naturally want a bargain, they don't want to sacrifice their experience.

Near-term buyers are less interested in fractional products: only 18.5 percent indicated they plan to buy fractional products, versus 24 percent of buyers who indicate a longer timeframe to buy. And 24 percent of near-term buyers say they will join a club, versus 19 percent of the longer timeframe buyers.

This ready-to-buy group is extremely Internet savvy: 99 percent e-mail daily, 55 percent are on Facebook. Word-of-mouth activity can make or break a promotion, and quickly. Don't be fooled into thinking this is a youth thing; social media usage is the same for both Boomers and Gen X .

Many Boomers still want their vacation homes, but they are significantly wounded and, with this five-year period of uncertainty (2008 to 2012), have shifted their focus to pre-retirement or full retirement. A large number would like their vacation home to become their retirement home. They are now focused on extending their active and recreational lives. If their resort home isn't their retirement home, they still want to be able to extend its use. The challenge for developers will be to adjust their programs and services to accommodate these desires.

"As I approach retirement, actually finding a home where I can retire has become more important."

"We are looking at where we would like to retire, as well as get a place where our families can visit and have a little vacation while doing so."

" [The home] needs to continue to be functional as I age and become less functional."

In contrast, Gen X is more optimistic and focused on getting its share of the good life. Xers find more value in time with family and friends, and place more value on community characteristics and the experience it provides them. Program and amenity preferences also reflect their interest in community and family, including greater resistance to exclusivity and the concept of a master-planned community.

"It has kept our family together, as often if we spend the weekend in the city, we are all in different rooms or activities. A country place makes us spend more time together than we would in the city home."

Xers are willing to accept more sacrifices inside their homes-size, finishes, etc.-but less willing to tolerate lower service levels or lesser common facilities.
While Gen X has its unique preferences, Xers are also following in their predecessors' footsteps and exhibiting the first signs of climbing the property ladder, like the Boomers did.

"Could use a bigger home as our children want to bring friends with them."

Gen X draws a distinction between vacation homes and second homes. They don't see their resort property as a place for vacation; they think of it as an extension of their home lives-they want it to be part of raising their kids, connected to the community.

Interestingly, Boomers are making a similar mental shift. But theirs is driven by a new focus on lifestyle longevity and retirement. The resort home is no longer just a retreat; it's a place to live.

"I don't consider our second home a vacation property. We have not moved in yet, but anticipate more opportunities for social events with community and neighbors."

We performed a lengthy-and fruitless-analysis of consumers residing in different regions. There are almost no differences of note; the only significant one is the Midwestern perspective on retirement: they don't. They simply work all the way to the grave!

Our income filter reveals some interesting but not surprising data. The more affluent set has a greater interest in the performing arts and recreational amenities like golf, swimming pools and dog parks. However, their interest in more active pursuits, like Alpine skiing or trail networks, differs little from the less affluent set. The affluent are more prone to whole ownership.

The more affluent are less interested in being green, and are less concerned with health and wellness, living within a budget, and converting their second homes to retirement homes. They are more interested in luxury. All income groups are interested in good value.

A surprisingly large number of consumers, almost 25 percent, say some form of fractional ownership is their first choice. These buyers see the property more as a form of vacation or club ownership than whole-owners, with less focus on community and more focus on amenities and programs. This group is more interested in private clubs, and is less tolerant of cost-saving measures in these areas.

The fractional product is more attractive to the less affluent and Gen X, often serving as an entry-level purchase for those who may have higher aspirations for resort real estate ownership.

All things considered, existing owners appear to be relatively happy. Only 14 percent say they want to sell. If they had the decision to make over again, respondents indicated they would largely buy what they already have.

"[I wouldn't do it differently]. I have previously owned a lake cottage. [This resort] has skiing, golf, swim and restaurant facilities. I am happy and comfortable with my decision to purchase here."

"We share the home with family and don't expect to be selling it or buying another."

1. There is a market …
And the preferences and attitudes expressed have identified multiple opportunities to improve messaging to prospective customers. The desire to own remains. "I want it, now I need to figure out how to obtain it." It is time to reposition and repackage, and to reengage our customers.

2. There are barriers to overcome …
As we noted in the previous issue, the sensitivity to ongoing/carrying costs is immense. Both the survey and feedback from developers indicate this is the most common, if not largest, hurdle in the sales process today.
There is major frustration with the infrastructure that creates ongoing fees, and a perception of a lack of control-with clubs, homeowners associations, and master-planned communities. Consumers still want most of the services and experiences, though. The challenge is to not only reduce ongoing costs, but also to repackage the club and the Home Owner's Association.

Vacant lots will continue to be a hard sell. People want to buy a home. Most standing inventory is vacant lots, so developers are faced with hard choices while building their way out.

Our traditional customer base, the Boomers, is under significant stress. Newly fearful of their vulnerability, both economic- and age-related, their interest is increasingly on extending their lifestyle longevity. A majority wants to find a retirement home, or at least find communities where they can extend their active lifestyles.

3. …and the market is changing
The arrival of Gen X demands that we refocus our thinking. For the first time, Gen X constitutes approximately one-half of the buying population, and a majority of those that want to buy in the near term. They are aware of the opportunity. Developers have spent their careers focused on the Boomers, and now must learn the preferences and peculiarities of the next generation.

In many ways they want the same things as their predecessors-a second home, access to recreation, more space as their families grow, with a genuine interest and focus on family, friends and community. The distinction between a vacation home and a second home is critical, the latter being one that is frequented often, with a very high level of use.

Like their predecessors, Gen X is just beginning the climb up the resort property ladder. Developers should study their new customers and return to the fundamentals of designing and delivering efficient packages with the right elements.

Don't give up on the Baby Boomers, just shift your thinking. The Boomers are still about half our market. Developers in locations that have the right fundamentals for lifestyle longevity and retirement-a temperate climate, good medical services and relatively easy access-can develop products and programs to accommodate them so they can at least stay longer, if not permanently.

Not only is there an opportunity to attract new buyers, there is the chance to keep existing Boomer owners in their homes, spending money in your resort, and not competing against you with re-sales.

4. Long lasting changes are here, but are really cyclical in nature.

Many of the trends identified are long lasting. While the recession may have accelerated the pace of change, most of the shifts are normal cyclical adjustments. Understand the depth and current needs of both the Boomers and Gen X. Identify which locations and products work for them. Create efficient packages of product and amenity that meet their divergent needs.

And finally, a reminder: We must talk to our customers. Reaching out allows us to tailor our products and messages to meet their needs and to uncover the prospects who really want to buy.

Three surveys of real estate professionals were conducted, in the spring and fall of 2009 and spring 2010, to understand how consumer behavior would change in response to the recession and what changes would be long-lasting. A consumer survey in summer 2010 followed. It was done in partnership with a geographically diverse group of 20 top-tier resort property developers. Keep in mind that references to "more affluent" and "less affluent" are all relative. The study defined more affluent as income greater than $400,000, and less affluent as income less than $200,000.

The surveys closed in July, with more than 6,000 responses, comprising approximately 80 percent qualified, prospective customers and 20 percent existing owners. The extensive data provide an unprecedented view of current resort real estate consumer demographics and preferences. If you are interested in the full summary report, please contact Claire Humber at \
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