Broker’s Report, May 30, 2007

Broker’s Report May 30–Real estate transactions in Mammoth have slowed to a trickle, but that is not surprising considering the drought ski season, the time of year (late spring is typically the slowest time of year for sales), the volume of media blasting real estate, and the lack of any promotion or announcements from the major development entities. The glimmer in the market are a small volume of buyers who are actually buying because they love Mammoth and want to spend an increasing amount of time here. For many of them, I can use an old real estate adage; time is of the essence. Maybe we can get the concept of owning real estate in Mammoth back to a quality of life issue rather than a purely economic one.

The other glimmer is the slowly eroding deadlock between buyers and sellers. There is still no rush of motivated sellers. But time, carrying costs, and the delay of moving to the next “event” is beginning to wear on sellers. Mainstream media is wearing down sellers. The lack of showings and sales is bringing some reality. The amazing thing is the apparent lack of motivation by many sellers who are sitting on speculatively built properties—and let me tell you, some of these are some expensive properties–high-end homes in the multi-million dollar range and condo projects with unsold inventory sitting for almost two years. Talk about staying power or deep pockets!

Meanwhile, this broker has experienced potential buyers and potential sellers that danced in the past months rekindling some interest. The initiation has come from both the buying and selling side, but it is a slow game of “real estate chicken”. In this market, sellers with real urgency go to escrow, otherwise the game just continues on. Or they go to foreclosure. The public information pipeline for Notice of Defaults (now referred to as pre-foreclosure) and Notice of Sale is growing, but nothing really substantial here in Mammoth or relative to many counties in California. For those who like a little scandal, there have been some notable (local) names on the list. And others that are a bit perplexing–it appears they have equity and/or they put substantial amounts down on recent purchases. But like I have said before, as we exit this era of extreme financing and hype, the foreclosure industry is heading into un-chartered territory.

…Lots of things to talk about…one of my favorite sidebar is the effect of the market on the local real estate industry. While the federal Department of Justice files suit against members of the real estate industry for “anti-competition”, there could not be a more competitive environment in Mammoth. The local industry has fragmented into small brokerages (what I call “the grass is greener syndrome”) and (almost) everybody who is left is pouring money into print media, mailings, websites, discounts and rebates, new fangled marketing campaigns, etc.–all to generate more business that isn’t there. There will be attrition and contrition, and a few real (and long overdue) retirements along the way. But claiming the industry is anti-competitive? Anyone with a pulse could get in and be successful the last few years. Now the work begins. And all of this will benefit the prudent consumer. And don’t expect the Internet to be a panacea. Buyers and sellers still demand personal service.

Now to the subject of… “Announcements”. Desperate Realtors and many sellers are hanging their hats on the future announcements that will return the Mammoth market to rocket ship trajectory. The grand unveiling of stellar hotel architecture and concepts, brands like St. Regis and Four Seasons, spas and more spas, and regularly scheduled air service are sure to get local real estate agents back eating and drinking at Nevados three times a week. The powers that be are smart enough (I think) to know that now is not the time to begin this announcement barrage. Expect announcements in late summer and fall when the market for Mammoth real estate regenerates with the anticipation of ski season. But how much of an impact will it make? The preponderance of potential buyers I communicate with believe the effect of potential announcements, and quite frankly some of the subject matter actually coming to fruition, is already priced in to the current market. It’s like the buyers are now all from Missouri–the “show me state”. So my favorite saying applies, “we’ll see”.

But here is one thing I see clearly. The art and practice of pre-selling may be in jeopardy. Besides buyers being promised one thing (a luxury product and superior service) and delivered another, there are other problems. Real estate developers failing to produce the finished product AND return the buyer’s (substantial) deposit is becoming a national issue. And it is just beginning to make the media’s radar. At the forefront are Florida and Las Vegas. Buyers with large deposits are ending up with neither a property nor their money back. The carpet bagging developer and sales team are gone (sounds familiar, huh?). The stories are soon to be on network news programs. Stay tuned. Luckily, California has some better real estate laws and the consumer has a little bit better protection. But ultimately, putting large deposits on properties that may take years to deliver may become increasingly unpopular (it sure is for me). And the “it won’t happen here” argument fails–Mammoth has already seen one recent “in the ground” development go back to the bank. Thankfully the bank’s people seem to be more competent than the original developer.

Another big problem is what I call “The Developer’s Quandary”. The new developers in Mammoth have paid premium prices for the land. They face even higher prices for concrete and steel thanks to global demand (and their projects with so much understructure parking are founded on concrete and steel). They’re facing rising interest rates for projects that take years to complete. And the jewel of their pro-formas–the fractional interest properties–have fallen on their face here in Mammoth. (By the way, the plug was pulled on Tanavista. One of their salespeople told me “nobody was interested”. But they’ll probably be back in fall–interest will be stronger then.) All of those plans and concepts and brands and announcements better be pretty special if they plan to pre-sell (and take big deposits). One would think these massive development costs should someday positively affect the values of existing real estate. But in the meantime, the values of existing Village condo hotel units continue to backslide.

Commercial real estate in Mammoth is in an odd place too. New commercial real estate specialists have decided to plaster For Lease signs all over local malls to promote business. All they’ve done is raise the awareness of how much commercial vacancy there really is–with more to come following this drought winter. New owners of major malls have paid BIG prices, are making major repairs and capital improvements, and their tenants are moving out because they can’t afford the rent and the common area fees (especially with those new property tax bases). Representatives of the owners of the Village commercial spaces have claimed that space is a seriously non-performing asset. Maybe somebody should tell all the new developers who want to add tens of thousands of square feet of new commercial space. Not me, I’m the one they always laughed at when I brought up the “capacity” issue in years past.

And then there’s the General Plan. After years of meetings, over priced fancy consultants, plenty of pontificating, and the latest rush of meetings to get it “on track”, the new Plan is admittedly not much different from the 1987 General Plan that I had the pleasure of working with as a Commissioner from 1990-98. Through the past few years I have asked many times “What’s wrong with the ’87 Plan? If you can answer that then you know what to change?” I guess they figured it out. All of it reminds me of a quote attributed (?) to Albert Einstein; “Vision without execution is a hallucination.”

Okay, specific to the real estate market: inventory numbers are not climbing significantly BUT some listings have been pulled to “give it a rest”. Again, there remains a scarcity of truly motivated sellers. We’ll see how long that lasts. Interest rates have risen in the past couple of weeks but still remain very good. Lending standards are tightening, but with no significant effect in the Mammoth market, so far. Residential construction appears to have slowed in Mammoth with the number of homes in plan check down year-over-year. But there are still plenty of homes under construction. (This could be a plus for condominium associations looking to do major retrofitting.) Foreclosures have yet to have any impact on the market. The first couple have just become owned by the bank and we should see them come to the market soon. The pricing of these bank REO’s shall be worth watching. The inventory numbers and the urgency of sellers are still the key indicators. Many asking prices are still in the realm of Einstein’s “vision without execution is…” The next few months should be very telling. But then we will have “announcements”.

Meanwhile, the Ski Area and the newly formed Mammoth Mountain Development Corporation (Starwood) seem more caught up in the whirlwind of modern high finance and high rollers than minding the store. Enough spring cleaning…time to go out and enjoy the warm days and snow free trails. And where are my fishing rods?