As the holiday market starts to bounce back after COVID, fractional ownership of holiday homes is becoming increasingly popular.
The rise in interest has actually increased since COVID, given that the risk of contagion is low in a private holiday home, and a home office on the coast or in the mountains is also an attractive thought. However, the cost for many people is just too high, which is where fractional ownership comes in.
According to a study by the Institut für Demoskopie Allensbach (Allensbach Institute for Public Opinion Research), one in four people in Germany would like to own their own holiday home, which equates to around 20 million people but only about 1.26 million actually own one.
So what constitutes fractional ownership or fractionalization? Essentially, as the word suggests, it means owning a part of something, although what that thing is varies enormously. It can include holiday homes, shares in REITS, land subdivision, tenants in common and over the past decade, there has been a surge in technology-enabled fractionalisation platforms in real estate.
Making such investments or other valuables accessible to more of the population, is often lauded as one of the obvious value-adds of fractionalisation platforms. The downside? Having to schedule when you can use a property with your co-owners.
Nikolaus Thomale
Nikolaus Thomale, one of the founders and managing director of Berlin-based PropTech MYNE Homes, is trying to change that - their customers can purchase shares in a holiday home online, becoming co-owners with up to seven other buyers. MYNE Homes has been active since 2021 and closed a financing round of €23.5 million a few months ago, attracting investors such as Berlin-based FinTech fund Embedded/capital, family offices TruVenturo and Scope Hanson and venture capital firm Rivus Capital. In order to further expand its own platform, MYNE acquired Hamburg-based competitor VillaCircle in March. VillaCircle offers fractional-ownership of luxurious holiday homes in Spain, Austria, Croatia and on the Côte d’Azur, among others.
‘Acquisitions play an important role for us in further growth and underline our claim to be the leading platform for investments in holiday properties in Europe,’ Thomale, said. ‘With the expansion of the portfolio to additional destinations, and a strengthening of the offer in the luxury segment, MYNE is appealing to an even larger target group.’
Providers such as MYNE, Denmark’s 21-5 – which now has an office in Hamburg - and French Lazazu are now trying to strike a balance between exclusive ownership of a property and mere rights of use. The new concept is called co-ownership and, like with a timeshare, customers acquire rights of use but also indirect ownership. In addition, the providers are trying to keep the circle of owners manageable. With MYNE, for example, a maximum of eight owners share a property, so that it is available to them for rent or personal use for about six weeks a year. Experience shows that this is sufficient: ‘Our clients want less rather than more usage time,’ Thomale said.
21-5 is offering something similar, albeit it on a larger scale. Here, 21 families acquire shares in five properties, which gives them around 12 weeks of holiday time a year. This is not only a financial issue, but also an ecological one, according to Fabian Löhmer, who is also part of the five-member founding team of MYNE.
Nonetheless, this requires some juggling to avoid everyone wanting to use the same properties at the same time. As a result, MYNE only offers shares in the same property to two families with school-age children from the same region: ‘During holiday periods, the property is available for a maximum of two weeks, and those who have booked at Christmas must give priority to the other owners the following year. In this way, at least 80% of the usage needs are met,’ Thomale said. In return, MYNE manages the properties, including renting, if requested, for a fee of €99 a month. Maintenance and running costs are passed on and MYNE receives a commission for the rental.
Buy-in stake ranges from €50,000 to over €1 million
So what does someone interested in such a scheme have to pay? It varies from firm to firm but is usually at least €50,000. The cheapest stake at MYNE is more than double this, at €109,000, and there is no upper limit, and at Lazazu, the cheapest stake is over €1 million. MYNE leverages its properties to a maximum of 50%.
It is a similar story in the US and in Asia. Pacaso in the US, which was launched in 2020, enables you to own, for example, a one-eighth share in a multimillion-dollar holiday home of your choosing and enjoy it 44 days per year. In 2021, Pacaso’s $125 million Series C fundraise led by SoftBank valued the company at $1.5 billion. Kooffers a similar model in the Asia-Pacific region.
Fractional ownership is also becoming more popular in the commercial real estate space and there are many fractional ownership real estate-related platforms offering diverse opportunities. Roofstock in Oakland, California, was founded by pioneers in the single-family rental space. A couple of years ago, it launched Roofstock One, a new investment offering that allows investors to buy shares of single-family rental homes and enjoy potential economic and tax benefits of rental home ownership, without any of the responsibilities of being a landlord. Financing, insurance, leasing, property management and asset management are all handled by Roofstock’s team.
‘Investor priorities may be changing, and we recognize that the old ways of doing things may no longer apply when it comes to real estate investing,’ said Gary Beasley, co-founder and CEO of Roofstock. ‘With Roofstock One, we’re making it frictionless and seamless for investors to reap the potential benefits of real estate investing.’
Over in India, Upside Investech Networks focuses on alternate asset investments by embedding technology to enhance transparency in deal discovery, deal assessment, transaction, and asset management. Strata in Bangalore invests in high-yield, Grade-A commercial real estate.
Going forward, fractional ownership is expected to become even more popular. Thomale believes that COVID has made the idea of owning a holiday even more attractive and his optimism is shared by other PropTechs. A study by TH Aschaffenburg and Blackprint Booster and Brickalize noted that 71% of the companies surveyed from December 2021 to March 2022 said that they had recorded more or noticeably more new business in the past year: In 2021, many of them reported an annual turnover of up to €10,000, whereas last year, many of them saw that rise to €500,000 and up to €2 million, respectively. Overall, 96.6% of the PropTechs surveyed were optimistic about the future and see ‘positive signs for their own market development’.
