Waking Up to Madness

A couple of weeks ago, both Mammoth weeklies ran letters from former Town Councilmen and long time local residents Greg Newbry and Gordon Alper. Newbry’s letter focused on the current Development Impact Fee (DIF) debate here in Mammoth. He has an educated perspective, having sat on the original Town Council here in Mammoth, sat on the Water Board, and is employed by Mono County in their Planning Department. Alper was a Councilman in the 90’s when much of the resort development was conceptualized, is a current Water Board member and owns a large family-run glass and window business. His letter is focused on the recent Council approvals of the lodge and hotel complex at the base of Chair 15/Eagle Express. Both men have a ton of experience, history and insight into the real workings of Mammoth.

Both letters have similar tones, and they are like-minded to some of the things I’ve been writing about in the last year. Is Mammoth finally beginning to wake up to the madness that may be on our doorstep–essentially selling out short-term to the developers who will leave us with major long-term problems. You would think our last ten years of Intrawest abuse would have taught us something. Even worse, individuals who vehemently think George W’s blunders in Iraq are so obvious refuse to do anything about the blunders in our own backyard.

Local media has reviewed a recently released documentary “Resorting to Madness”. I don’t know if I can stomach watching. But one of the film’s makers, Hunter Sykes, was recently quoted on MountainNews.com—the website dedicated to the mountain resort industry. The quote, “It’s a ski area arms race. The whole thing is a giant scam. People are trying to get as much money from real estate and then its ‘who cares about what happens’”. The “people” Sykes is referring to are, namely, corporations and private equity firms. With Intrawest coming to Mammoth ten years ago and now gone, Mr. Sykes’ simple comment describes exactly what happen here. And now the “names” have changed but the same people (or their ilk), the same tactics, the same bullshit are back. Here in Mammoth, the private sector and public sector players haven’t changed a whole lot–we’re destined for the same result.

Mr. Alper is right–the Town Council hasn’t learned from the past and the citizens of Mammoth remain apathetic. (The present local officials still haven’t learned that developers always ask for more than they expect to get.) But something very significant has happened. A December 25, 2006, article in Forbes magazine calls condo hotel units “lousy investments”. The condo hotel business is the “scam” Mr. Sykes refers to. Build a bunch of high-density units (after beating up the local municipality) and quietly imply to the prospective buyers that the rental revenue will be impressive. Then low-ball the budgets (hence the projected fees), build cheap product with some nice lipstick, sell the project out and get out of town as fast as possible. Leave the new owners holding the bag. Then we’re in to the “who cares” phase.

In many markets (including Mammoth) there is already an oversupply with many new projects coming forward. In many markets there is inadequate management and personnel to run the “front desk”. (Ask yourself; why would a professional hospitality company put their best people at a highly seasonal property where they service no debt?) Something else very significant has happened. The greatest bull-run of our lifetimes in real estate is over. Intrawest’s timing was brilliant–for them. Today’s buyer is more patient and discerning. With the hope of escalating appreciation gone, buying at a pre-sale event and waiting three years for your condo isn’t going to make sense any more. And these new buyers might even read the Homeowners Association documents. Another part of the “scam’ is over. The pyramid-like scheme of bringing existing owners in to give them “preferred” priority-purchasing position on the next project is now only a game that fools or the too-rich-to-care will play. Think musical chairs. Think chain letters.

So now the public has learned (and this will only get worse) that this product is a lousy investment and doesn’t really have appeal to the majority of our market–southern Californians. Simply there is already more supply than demand. Throw in marginal guest service levels, increasing HOA fees, no motivation to fill rooms in the (long) off-season, no established air service, no public parking AND then look at land costs, development and construction costs, marketing costs…But who cares?

The February 10 issue of The Economist contains an article on private equity (okay, remember, that’s who owns Mammoth now). The article starts “Take an underperforming company. Add some generous helpings of debt, a few spoonfuls of management incentives and trim all the fat. Leave it to cook for five years and you have a feast of profits. That has been the recipe for private-equity groups during the past 20 years.” Gee, Rusty Gregory told us day-one he thought Starwood would be here 5 to 7 years. Just enough time to encumber half of our town, throw management (Rusty) some incentives, trim all the fat and let it cook, and then reap some profits. Then “who cares about what happens”. Wake up Councilmen, we’re already in the trim-fat-and-cook phase.

Now this might all be my opinion, but a year ago I was having a drink at a local bar with who I consider the pre-eminent land-use attorney in Mammoth. We were talking about the negotiation of the Development Agreement between the Town and Intrawest. This took place several years ago. He didn’t hesitate to say that “The Town has all the cards, they just don’t know it.” Wouldn’t we all like to negotiate against fools like that? I then asked him what the Town left on the table in that negotiation. He had obviously though about it. He said very matter-of-factly, “$100 million.”

Fool me once, shame on you. Fool me twice, shame on me. Isn’t it time Mammoth wakes up to the madness?