Broker’s Report, October 2, 2007

Broker’s Report, October 2––The warning signs all Fall into place––the days shorten, the leaves turn yellow, the kids are deep into school and the ski magazines come in the mail. It can be the busiest time of year for Mammoth real estate sales and some years the buyers have come in hordes, but this year it is down to a trickle. But those that are here are typical––and from what I can tell the hottest item this Fall is a Juniper Springs Lodge condo. That is if you’re not building a multi-million dollar custom home (some of the newest ones are REALLY impressive). Go figure.

The volume of closed sales, or the lack thereof, in the past couple of months tells me very little about the market itself. From everything I can read, the Mammoth market is no different from almost every other real estate market in the country. Real estate has become today’s national black eye. But I’m still watching inventory numbers, foreclosures, and seller sentiment and behavior. I’m also observing the impacts of seasonal (long-term) rental demand, an outflow of transient construction workers, and local business attitudes towards obvious lower tourism numbers.

A sign of the times: The recent, rare sellers who have made significant price drops in their listed asking prices, or even through negotiation and subsequent escrows, have suffered great disappointment. Jittery buyers have walked away from what would have been considered outstanding buys just 6 to12 months ago––and very little of it had to do with interest rates or qualifying. In most segments of the market it appears we have moved back to the values (actual sales) of the late 2003 or early 2004 timeframe.

The inventory numbers are interesting and telling, or maybe confusing. Rather than escalating like many markets, they are making their typical seasonal adjustments––reaching a peak around Labor Day and now falling off. The humbled sellers are taking their unsold (and sometimes completely unlooked at) properties off of the market or letting their listings expire. Some are looking for long-term renters, some are just willing to wait, and many are just indifferent (indifferent and “motivated” seem to be the same thing today). Most continue to possess Mammoth bullishness for the long run while accepting the current bearish market conditions. I guess they have been conditioned to “not feed the bears”.

The foreclosure market is a little trickier to grasp. With lenders overwhelmed by defaults in California and across the country, the foreclosure process has moved into completely new territory. Lenders seem prioritized to move quickly on the obvious specuvestor defaults––properties/borrowers/”files on the desk” with no hope of, or desire for, redemption. We’ve seen a few of these cleaned out of the Mammoth market already. The bank REO (real estate owned) departments are so backlogged that we are just beginning to see those appear back in the marketplace. Many of the local defaults (and there aren’t that many) that do come into the information pipeline appear to be worked-out––forebearance of some sort (especially if the property is on the market), new loan terms, etc. Ultimately, as I have repeated in the past, the buyers in Mammoth of the past seven years were more substantial than in many of the other markets. We’ll find out just how substantial in the coming months and years.

The foreclosure arena does have compelling sidebars. In a classic episode of Mammoth real estate history, the high profile buyer of the past few years who put to escrow (and subsequently never performed) many of Mammoth’s restaurants and who chased many commercial property owners (and gave them delusions of valuation grandeur), himself ended up with his home at a trustee’s sales. But rather than the bank taking the property back, it was in-fact purchased at the sale (continued evidence of the demand for quality single-family homes). Another aspect that may go relatively unnoticed is the foreclosure or “calling” of many privately held notes. In this past cycle, large and small developers accessed local sources of private money. That money is sunk into both improved and unimproved properties all over Mono County. And some of it is sunk into some very expensive spec homes here in Mammoth. And now some of the borrowers are unable to service the debt and the private lenders want their money. The disposition of all of this will be fascinating. There will be reverberations. There will be opportunities.

I’ve received numerous inquiries about the Westin. These units are scheduled for completion in the coming months and they are booking rooms for the holidays and beyond. But buyers with contracts and 20% “in” and 10% non-refundable (hard) are beginning to have their own reservations about closing. They’re concerned that walking away from their 10% may be a better business decision than closing and going onto the rental program and potentially selling in the short term (or longer). Many are asking my advice because I’m not their broker in the transaction so I don’t have a commission to lose. (And by the way, most of those commissions were pre-paid by 50% or more.) Some of these buyers/investors are balking at the fees paid to Westin off the top of rentals and then the management fees too. They’re also watching values in the Village slide. Some can’t sell the properties they want to “roll in to” (1031) the Westin. And interest rates are up. Some buyers have simply had lifestyle changes since they signed contracts 2-and-a-half years ago. But my guess is that it is primarily economic. (Ya think Paul?!)

After some of these discussions, here is what I’ve discovered. Many of these buyers didn’t realize that the Westin is a steel and concrete structure with true ventilation (like a real hotel)––hence it will be quieter and far more comfortable than any other units built in the Village. It should warrant the higher nightly rental. It will definitely be more popular in the summer where the lack of ventilation, or the hokie air conditioning, in the Village is considered a joke. They also aren’t aware of the additional efforts that are being made to make the operations run smoothly from the get-go and the value of having “Westin standards.” They are also not really cognizant that the prices they are paying aren’t more than what the same sized units in the Village are selling for––so in a re-sale scenario they should be competitive. (I’m essentially re-selling/re-informing the features and benefits of the property––where the hell are their agents?)

But the thing that really stood out in these discussions for me was that many of these buyers didn’t understand that the “next better” condo hotel property was far off in the future. Due to planning and construction timeframes, the current credit tightening and financial markets, overall consumer demand, etc., the Westin is destined to be the premier lodging in Mammoth for at least the next 3 to 4 years, maybe longer. That in and of itself could make these units worth closing on. And something else that will certainly be worth watching is that some of these new owners intend to rent their units on their own through services like www.vrbo.com. And if they are successful (and they will be), how the entire Westin Monache operation will be affected. Business models all over are changing rapidly.

What else? Long-term rental rates/values appear to be declining for the first time in years. Probably a combination of: more rentals in the pool due to speculative buying, the increasing volume of deed restricted/government sponsored housing, the out-migration of transient construction workers, the below-average ski season last year, and quite frankly, we’ve probably pushed the limits of affordability too far…The Ski Area continues to slip in the annual ski magazine polls but continues to report increased and record profitability. Maybe because it more resembles a hedge fund every day…The upward move by the Canadian dollar (or is that the downward slide by the U.S. dollar?) will only make it more expensive to ski in Canada, namely Whistler. Will that help the U.S. resorts and Mammoth? And will we attract more European skiers and tourists? I hope they don’t get rid of lift lines!…The new branding efforts continue with more workshops. We seem to be heading more towards “organic” than “luxury”. The “branders” need to be at the new live theater––at comedy night…And to dispel the rumors, jumbo loans are available and the rates aren’t that bad. You just need a good FICO score and a down payment. And mortgage brokers are getting squeezed out of the market. Mortgage bankers and direct lenders are highly recommended. (Sorry brokers, just a working observation.)

My firewood is stacked and my psychiatrist has prescribed a couple of weeks on the warm Pacific to cure my recurring nightmares of ex-Intrawest salespeople promoting a new multilevel marketing scheme for an anti-aging juice blend. (It does seem like a logical segue in the Boomer focused marketing world.) Hopefully there will be skiing when I return or soon thereafter––psychiatry is good.