Mammoth Real Estate Q&A: With All This Snow How Could There Be A Bottom?

This Q&A appears in this week’s issue of The Sheet.

Q: Your last blog post about Frustrated Buyers made me think we may have reached the bottom of the market. I know from the past you’re not a bottom caller but I would like to hear your analysis of where we are?

A: The big news is: We are definitely at the bottom. Uh…well…maybe…sort of…or maybe not.

Like I’ve said many times in the past few years, we’ll only see the bottom in the rearview mirror. And anyone who drives a car knows if you spend too much time looking in the rearview mirror you’re likely to miss something very important in front of you. Calling bottoms has been fashionable for some, but it is also risky, that is if you have anything to lose. People who call bottoms usually have very little to lose. People (like buyers and sellers) who are betting (or not betting) their dollars on bottoms have far more to lose, or gain. And more and more people “just want to get on with it.”

The Frustrated Buyers post was very much written from personal and professional experience. As humans we all have events etched in our minds that if we could return to them, and take advantage of them based on what we know now, we would do things differently (yes, I’m in the middle of a mid-life crisis). The Mammoth real estate market is full of them. Many buyers are incessantly perusing the Internet for new Mammoth listings that are equivalent to some property they almost, or did, make an offer on and lost out. Most times they offered too little, sometimes they acted too slowly. Regardless, today they can’t find a replacement, or the similar property is priced significantly higher. But does that create a bottom?

Conversely, the statistical data has some segments of the market dropping another 10 to 20% in the last year. The various segments in the market have very different supply and demand characteristics. Some segments of the market have lots of “cookie cutter” supply, and some don’t. Some condo projects don’t turn over at all, or very little. Some of the properties built and sold in the peak of the market have devalued greater than others. Some sold properties were foreclosures with more aggressive (price reducing) investor/sellers. The higher end of the single-family market has devalued more than the lower end. Many high-end homes were built on speculation and ended up distressed and/or foreclosed on. And forget appraisals, if the appraiser isn’t also active in real estate sales, or communicating daily with the agents, then they are out of touch. So the market is all over the place.

As part of my job I consume as much information about real estate as my brain can process. Obviously, some of the information is about economics and general trends in the market, or what is happening in the state or nationally that will impact the market. And I certainly don’t rely on the National Association of Realtors to guide my thought process. In Mammoth, the one thing I watch is the Ski Area. They are the economic driver of the community. The Town (government) can bumble and fumble down the road and have all of its calamities and bad press, but as long as they keep the roads plowed (which they are stellar at) and keep the barbarians from running amuck, then everything seems to just even out. But the Ski Area is something quite different. I often laugh at people who don’t ski or ride the Mountain who think they are in touch with what’s going on in town. They really don’t. A perspective going back at few decades helps too.

So what is up at the Ski Area? The recently stated accounting projections are that revenues are up, again. (The result of the burrito-vending snowcat?) We can only hope that expenses haven’t increased more than revenues, but it doesn’t feel like it. It would be very interesting to see inside those numbers, where the increased revenue is coming from. We all know the MVP keeps increasing in price, but the demand appears fairly consistent. Across the board, these season pass programs look like the life-blood of ski resorts today. Or are the increased revenues coming from MVPs just spending more on beer, demos and lessons? I have a hunch that one of the values of re-opening the MVP program to new members is that the newer MVPers are the ones spending the most highly profitable discretionary dollars on the Mountain.

Many people forget that the Ski Area is also a large “front desk” hotel operator/property manager in Mammoth. They can thank the Intrawest model for that. The rental numbers generated out of the Village and Juniper (Eagle) condo hotel units and the MM Inn have to be impressive. It has taken awhile, but it sure seems they are getting it figured out, and I’m in the condo hotel properties all the time on business. But is this where increased revenues are coming from? Or is it more of the discretionary dollars being spent by real tourists who come on packaged deals? Or maybe the black pass holders really are big spenders? Or maybe it is the table service at the Hyde generating this extra revenue? I was even thinking maybe they were using the “MVP float” to play the market, and were playing it well.

So what does this have to do with the “bottom” in Mammoth real estate? Well, as goes the Ski Area so does this town. Many people think they have a monopoly, but there is plenty of trickle down and trickle over. Along with talking about revenue projections, they are talking about re-structuring their debt to lower interest rates (always a good sign). They are also talking about capital improvements including a potential major renovation to the Main Lodge this summer (and beyond) and finally moving on a real Eagle Lodge (maybe that’s where the money is made). This isn’t suggestive of the Intrawest smoke-and-mirrors era. This is more reminiscent of Dave McCoy thinking through business and expansion plans with the community, except now there are greater business minds and investors watching over it all. All of this is giving serious money more confidence in investing in Mammoth. Regardless of how attractive the skiing and recreation and climate is, people with money are more scrutinizing all the time, and many like what they see.

The April 11 issue of Fortune magazine’s cover story announces “The Return of Real Estate. Finally.” The article openly admits all the confusing signals in the real estate market but does hit on some main points: the lack of new construction, the increasing cost of new construction, the huge drop in prices bringing many properties into (relative) affordability, that there are plenty of “non over-distressed markets” (indicated by lower inventory) ready for value growth, and decreasing foreclosures. Now this article is primarily focused on metropolitan markets and homebuilders, but many of these are the same factors we’re experiencing here in Mammoth: there are no new units being constructed, the cost of construction is rising (including the need for fire sprinklers in new homes now), the 40-60% drop in values in many segments making properties “affordable”, the fact that Mammoth is not “overly distressed” (by virtue of the inventory), and what may very well be decreasing foreclosures, especially in the more quality and second-home type segments. Meanwhile, there are plenty of frustrated buyers (with “all the patience in the world”) and more retiring boomers looking to play in the mountains.

For all the potential buyers of real estate in Mammoth, the last month has been an excellent time to be educating your self. The record volume of snow has provided a wonderful glimpse at what particular properties look like at peak winter/worst case scenario condition: something you won’t be able to see on a beautiful August day. And that’s a good “looking forward” activity.