Mammoth Broker’s Report–Bailouts, Dropouts and Wipeouts

Broker’s Report, March 27––Currently, the most important real estate news in Mammoth is the re-opening of the Mammoth Value Pass (MVP) membership. Yes, those who don’t belong to the pre-bought discounted season pass program have now been offered a chance to join––you just have to come up with $576. And forget all the mamby-pamby stuff from previous members who thought it was “exclusive”, or that in this economy the Ski Area should have discounted the price from last year. There are a multitude of things swirling around this. Let’s take a look.

First, owning a season pass at Mammoth is about as good as it gets. My last “real” one cost $1040. I remember sitting around the locker room in the Main Lodge in 80’s and a fellow season pass holder (he’s still around––plays his guitar in bars) made the statement that having a pass and being able to ski so much was “the great equalizer.” You see, back then the economy here in Mammoth sucked, and everybody had several jobs––each season. But what “equalized” it was being able to blow out a few hours of skiing (it was more time back then, the lifts were slower and we were younger). So now that we’re in the Great Recession, this is the chance for many to alleviate their depression over not being able to ski at the “glamorous” resorts with a pass at Mammoth. And one of the best things a local resident can own (or anyone else for that matter) is a season pass. It is a great benefit to living here. But many newer (less than ten years) and valuable local residents don’t have a pass because of the cost and they aren’t MVPs. But now they have their chance. It will make sticking around a whole new experience.

But this is a real estate blog. Okay, I’m already seeing potential buyers picking up on the concept that was so profound ten years ago: if the family has passes, we need a crash-pad. The cost/benefit analysis for so many people just makes sense. The current economy will certainly curtail the rush but once they have their receipt and reality in hand they will be thinking about where their going to be sleeping while they quest for “dozens of days” and fresh powder––even if it just a seasonal rental. Re-opening the MVP creates demand for real estate and it increases the flow of cash around town from happy hours to hot waxes.

And in the grander scheme, the projected 38,000 passes multiplied by $576 equals the reported new annual debt service on the Mountain. Probably just in time if you think about when the Starwood deal closed in 2006. I’ve even had people ask me: what if they buy a pass and the Mountain doesn’t make their payment and they don’t open next year? Well, I think Mother Nature is a bigger concern, it’s always a gamble, but at least the bank would have the sense to keep the lifts turning. Heck, the bank might be running it now for all we know. I’d be more concerned about Washington DC collateralizing the Sierra Nevada to the Chinese, and then what? The Sierra Club’s legal team may not be that good. The MVP is on sale in April until they sell 38,000––like they would turn away an extra few thousand cash-in-hand buyers. The only downside: it might make Saturdays crowded again.

The Town fathers seem to be getting understanding too––nobody can continue to operate like a hedge fund manager addicted to finance and leverage (and grants and developer dollars). While everybody was arrogantly spending years arguing over PAOT (persons at one time), now sustainable cash flow is once again becoming an accepted concept. I’ve tried to come up with the new acronym, but envisioning a limit to PAOT is now Just Get Lots of Persons (with disposable cash) Here Now. The Town continues to toil over (and is beginning to panic over) what to do with illegal home rentals (run wild). TOT (bed tax) evasion is at a critical point. The Town has finally awakened to what the local real estate industry has known for a decade––the Internet radically changes the way business is done. It seems inevitable that the transient renting of single-family homes will become legal, or tolerated, and maybe even welcomed, as long as the owner pays the bed tax. And with some homes generating a purported six-figure annual income, and the obvious demand by the consumer, and the support industry now established, the future of the single-family home market may be changing forever.

Meanwhile, last week’s The Sheet reported that during budget discussions that Councilman McCarroll (who happens to be an attorney) stated that the “Town’s litigation expenses are expected to soar” in relation to the Hot Creek/Airport lawsuit. The Sheet didn’t connect dots, but that says to me that the Appeals Court intends to hear the case. And the sister case is yet to be heard against Mammoth Mountain. This is all going to get even more interesting (who needs TV or novels with this entertainment?). But regular air service is working. More flights are proposed for next winter including a flight from San Jose. Now, I wonder if the Ski Area is advertising MVPs in the Silicon Valley––it’s a quick flight and every software engineer I’ve ever met loves skiing at Mammoth. Just this week I was down at the airport when the Horizon flight came in. The impression I was left with is how close the airport is to town. This new accessibility will become increasingly attractive.

Getting more real estate specific, I have recently experienced the public’s confusion over the term “foreclosure.” Consumers are obviously out there reading, and I think the confusion is coming mainly from articles written by general newspaper writers (LA Times?). When we represent lenders on foreclosed properties, they are referred to by the industry as REOs or real estate owned by the lender (and they want to get rid of it). For the general public we have found that referring to the properties as “bank owned” or “lender owned” clarifies this. These are foreclosures, but more technically post-foreclosure. But many articles are referring to “buying foreclosures” as attempting to buy properties at the trustee’s sale (sometimes referred to as the auction) where the lender is actually foreclosing on the property but giving the public the option to out-bid them. Buying a property at the trustee’s sale can have many (dangerous) unknowns: there can be all sorts of liens, title defects, no post-sale inspection rights/due diligence, etc.. Plus the buyer needs cash. Conversely, attempting to purchase a REO or lender owned property gives the buyer the right to inspections, title review, financing, etc., just like a normal transaction. There is a big difference.

Speaking of REOs, we have just worked through the inventory of foreclosed (and lender owned) units in the Village. Right now I don’t see any more in the foreclosure pipeline, which is an 8-12 month lead. There is one tied up in a bankruptcy. But this is significant and something worth noting in the market. These REO sales have been major discounts (some up to 60%) from the peak values. But at these prices there are motivated buyers (yes, I said motivated buyers). Now there aren’t any more at these prices. Some motivated sellers who actually have equity may now show up at some slight price increases. Will there be buyers? Or will the lack of summer rental revenue force more into the foreclosure pipeline? Right now this situation has stabilized. But go across the street to the Westin Monache––no foreclosures yet, but plenty of inventory and stress. A great place to visit, but…The REOs continue in the older condo projects and some single-family homes are in the pipeline.

Lending on Mammoth real estate remains a moving target and the government is steering the ship into calmer waters. Qualified buyers are closing transactions and getting good rates. Jumbo loan rates are easing. Fannie Mae is tightening on condo projects that have ostensible “front desks” and other “risky” red flags that are increasing down payment requirements and closing costs to the borrower. (They are even proposing to review the FICO scores of all the other owners in a project!) Potential buyers should talk to a competent mortgage banker/loan officer before making an offer. Rates are low and maybe going lower…. And if you ever wanted to build your own home now is a great time––there are inexpensive lots, Town fees have been slashed until next summer, and there are plenty of hungry contractors who need gas money for their water ski boats… As far as new developments, little if anything will be built for years. We’re in an era of inventory absorption and al developers need values to rise to have any profit margin. But I’m seeing a good deal of pent-up yet patient demand… Many agents are taking short sale listings without really understanding what they are facing, especially in this market. Those short sale list prices are artificially (and arbitrarily) low and skewing the MLS inventory. If you are watching the inventory online, look at the details to see if the property is short sale pricing. In the last week I have seen two protracted short sale escrows cancel because a better deal with a real seller (usually a lender) came to the market.

In the past few years I’ve taken heat from my peers for being bearish or even doom and gloom (ironically, many of them are facing, or have, moved out of town, left the business, or hired BK attorneys). So last week I was reading Warren Buffet’s annual letter to the Berkshire Hathaway shareholders, he made a simple statement, “When investing, pessimism is your friend, euphoria the enemy.” My sentiments exactly. The euphoria days are over but there are still plenty of reasons to want to own a piece of Mammoth. There is still demand in the market and we’ll see how it reacts, but in the meantime take Warrens’s advice, stick with your friends.