Taking Inventory in The Village At Mammoth

My regular readers know I’m watching the inventory of properties here in Mammoth as the telltale of where this market is going. In fact, I’m watching a myriad of micro-market inventories because not all properties are created equal. One segment of the market I’ve been watching closely is the condo hotel units in The Village. The dramatically increasing inventory of Village units (specifically White Mountain Lodge, Grand Sierra Lodge and Lincoln House) in last two weeks is sending a loud message. (The Mammoth MLS doesn’t show there are any in escrow either.) I now sense this will be a topic of great interest and observation for several years to come.

Why is this happening? Is it the simple dysfunctional failure of The Village primarily due to no public parking and insufficient “critical mass” (interesting commercial operators?) Is it the performance (or lack thereof) of Mammoth Hospitality–-the hotel operators (revenue generators) as well as the on-site management of the physical plant? Or is it an already oversupply of condo hotel units in the unique market that is Mammoth? Or were most of the acquisitions in The Village just ridiculous speculation driven by the final crescendo of Intrawest’s marketing efforts here in Mammoth? And has the drought-like winter of 2007 just exacerbated all of this? (I must disclose that I have never personally represented a buyer or seller in The Village.)

The condo hotel concept is relatively new, especially in California where real estate regulations are about as strict as anywhere in the world. One of the keys to their evolution was/is the lack of financing for the development of traditional hotels–-especially in resorts like Mammoth where occupancy rates are anticipated to be well below lender criteria. So the developers build condos (with kitchens) instead of hotel rooms. And the condo owners are the investors who shoulder the economic shortfall. The proverbial chickens in the condo hotel world are now coming home to roost. Here in Mammoth the formula doesn’t appear to be working well at all. Unfortunately the values in the Village aren’t likely to hold, and the rising inventory is the first and foremost indicator. But fortunately for most Village owners, they still have equity. But for how long?

One of the interesting aspects of the whole condo hotel scheme is how they operate in relation to regular, traditional condos in Mammoth. The condo hotel operators are basically employees with no ownership or vested interest. Traditional reservation companies in Mammoth, especially the “mom-and-pop” companies, have vested interest with their partners (the condo owners). Vested interest is good for condo owners.

Many other thoughts come to mind and they will have to wait for later writings. But here are some of things on my mind; some of the new listings are what I would refer to institutional or speculative owners. It is telling when their listings come on the market in couples or bunches at the same time and they have the same owner (and they have the same listing agent). Clearly these institutional-type owners think it is time to head to the exits–-and they want to be first in line.

Here’s another question on my mind? The tipping point? Thank you Mr. Gladwell. If this volume of new listings combined with lack of income continues (and what is going to stop it?) this market segment could be in real trouble. Rumor this past week is that committed Westin Monache buyers are now backing out. Intrawest certainly wouldn’t broadcast that! And Starwood might be a little concerned about that trend. And as of yesterday we have our first “flipper” listed in the 80/50 fractional project. Good luck.

One thing that really disturbs me is local brokers talking about “income” in these condo hotel units. Do they realize this is considered a violation of Securities law? Ten years ago when the public officials of this community (I was one of them) approved the first condo hotel project in this town (and I believe the first in California) we were forbidden from calling them “condo hotel” units. That was a Securities violation. It implied a third party relationship, and a Securities license would be required to sell them. Noted hotel attorney and blogger Jim Butler (www.CondoHotelBlog.com) even today questions the use of the term “condo hotel” in the State of California.

But the income component of these properties is becoming more laughable every day. Last week a one-bedroom unit in The Village was listed in the local MLS and the promotion was “$45,000 in gross income in 2006.” Now that sounds pretty good–-to a neophyte. If you do the math it will cost the new owner $55,000 to buy an investment that runs negative $2,000 per month (my best approximations). And 2006 will go down as a damn good year for revenue.

Another red flag (and something on my mind) is the inordinate amount of The Village inventory in White Mountain Lodge. This property runs along Minaret Road and the common complaint is that it is too noisy–-road and snow removal noise–-all night long. The quandary for Starwood is they plan to build their new, upscale “1” hotel right across the street. I hope they have an extra budget for soundproofing. Or maybe their young, affluent, and hip clientele don’t need to sleep.

Ultimately, The Village condo hotel units may be heading the way of something that resembles Pets.com. Overbuilding in this market segment, higher (mortgage) interest rates, higher HOA fees, revenue reality, new buyer attitudes, and plenty of other things will be topics for discussion in the future. Meanwhile, who stole the parking? We’ll be getting to that.