This Real Estate Q&A appears in the week’s issue of The Sheet, which also has a lengthy and interesting article on resort air service. Check out their website if you don’t have a copy handy.
Q: In your blog posts you keep reiterating that no new real development will occur in Mammoth for a long time. What makes you so sure?
A: Real prospective buyers and “tire kickers” alike are always asking the question, “What new developments are going to occur, or on the near horizon?” And local Realtors® have promoted new developments as the resulting reason to “buy now”(and because you’re so smart). The new development concept is a big psychological part of the local real estate market.
Right now is a very different time here in Mammoth and the real estate development world. Virtually nothing is being developed outside of a half-dozen new single family homes. Even in the depressed 80’s and 90’s there was almost always something being built. In the worst of times Tom Dempsey had a few fourplex buildings under construction in Snowcreek Phase 5. He built Phase 4 in the mid-80’s. Smaller condo projects like Winterset and The Pointe were built in those lean times. John Hooper was building small single-family homes on speculation and building and selling apartment buildings during many of depressed years here in Mammoth. And in most of those years the existing inventory (#) of condos and homes in the local MLS was in excess of what we currently are experiencing.
But what are the prospects of new development? Dempsey’s successor at Snowcreek has to be looking back at the old playbook. The project has plenty of entitlements to move forward, but the monstrous and expensive units that made sense five years ago don’t make sense anymore. Creekhouse (Phase 7) is sitting still despite the most wonderful setting in Mammoth. At Phase 5 Dempsey cut the project into lots of mini phases so he could shift with the changing market. I was sitting in the unique position of being a real estate broker and a Planning Commissioner at the time. They were always trying to anticipate what the market would want two to five years in the future and I was seeing it in their applications. Sometimes they got it right, sometimes they didn’t. Now Snowcreek is facing the same challenge. Lately, we’ve had good interest and sales in Phase 5 in the 3-bedroom /3-bath 1-car garage townhomes. Those sales are in the $500K to $600K range depending on the views and which era the particular unit was built in. That says something about the market. Snowcreek is the most likely place for future development.
The next likely development potential was the Clearwater/Old Mammoth Place property. But the recent and very appealing improvements to the property are indicative of that future potential. Clearly, nothing major will change there for many. That is the new collective state in Mammoth for the next 10 years––redevelopment and not new development. It is all comes down to financing and the steep decline in values in the last three years. So what about all the property around the Village, including the former future sites of the Ritz Carlton and the “1”? Those properties are sitting on the books of New York City based equity firms. It might be years before anybody looks at them seriously. Condo hotel units in the Village are selling at bargain basement prices. Many are bank-owned sales at far below original selling prices. And as long as conventional financing is not available for buyers, who in the world would loan the money to a developer to build more units? Essentially the value of the land has gone to near zilch. (And I can see on my calendar that in the next year we will be hearing their property tax appeals.) Don’t expect the financing pickle to be solved anytime soon, Washington has to figure out what to do with FannieMae and FreddieMac first, and that may take longer than the war in Iraq. Meanwhile, we’ll have to rely on cash-buying vultures to keep those values stabilized.
So the real answer is that Mammoth is settling into a new era of redevelopment, not new development. Many of the 70’s built condo projects (along with The Rafters) are the poster children. Go look at the Summit or 1849. They’re just finishing up the details on these expensive rehabs but their locations (and decay) have warranted it. We better get used to it. It is a major mindset change from where we have been. Welcome to the world of de-leveraging in a mountain resort community. This last week the commercial real estate offering on the Sierra Center Mall hit all of the commercial brokers in Southern California. I immediately got calls from a variety of people. The Receiver’s broker has put together a nice package and pro-forma. This community can only hope that some nice, benevolent investor who loves Mammoth purchases the property and follows the ways of Mr. Demetriades. And our local government needs to learn to embrace and welcome somebody with that mindset (and pocketbook).
People are talking and we need to listen. I pulled this quote from McKinsey Global Institute about de-leveraging; “(there is a) shift in spending towards value-oriented goods and away from luxury goods, and this pattern may persist while households repair their balance sheets.” And from a Wall Street Journal blog; Luxury property, seeing the term “luxury” now equates to “prepare to be screwed.” Life is funny, everything seems to come full circle. Mammoth may not be a luxury resort, but it is a great value.
Much of the public thinks new development is good for real estate agents and brokers. Well, yes and no. What we’ve learned from the past boom cycle is this; all of the hype-on-steroids gets people enthused, and as one of Intrawest’s marketing gurus was famous for saying, “selling is the transfer of enthusiasm.” It worked, and the following credit bubble jacked the market to the sky. And with all of the mania came the industry carpetbaggers who have come-and-gone or crashed-and-burned. As I often mutter to myself, “Who were all those people?” We’re also left with a handful of empty promises from long-gone developers, but in the end we’re really okay. At least we have our coveted ice rink. And the pendulum has swung so that most in the industry report that they “work three times as hard for a third the money.” Poor baby.
For buyers in today’s market the last development cycle produced an interesting array of condo offerings, a broader variety to fill different needs and tastes. Many years ago I was mentored by an old broker who was a second homeowner in Mammoth. He introduced me to his philosophy that a buyer should never purchase a condo newer than four years old or older than 20 years old. His reasoning was that it took at least four years to sort through the “newness” of a project (i.e., organization, inherent problems, developer stuff, etc.) and projects over 20 years old were heading toward too many maintenance concerns. I’ve always thought it was an interesting philosophy but never completely accurate here in Mammoth. There are plenty of “oldies-but-goodies” in the market, especially with some of the major capital improvement projects that have happened (especially if you buy on the back-end of those assessments). But there are many newer projects that fit perfectly into his criteria, and they’re priced at significant discounts.
Meanwhile, the Mammoth market is handling the increased supply of newly developed properties, and the relatively low inventory numbers are the best indicator. This remains a great time to think re-develop. Time to remodel the interior of your tired condo, add-on to or remodel your tired existing home. And it’s a great time to purchase a dated property with good qualities and re-develop it. Local contractors are eager to work.
Enjoy Mammoth this summer, this is my 29th summer and I can’t recall one as green and lush. Of course, it all depends on the lens you’re looking through.