Mammoth Real Estate Q&A: Why Should I Buy If “The Sky is Falling”

This Mammoth Real Estate Q & A appears in this weekend’s issue of The Sheet. There is a good crowd in town for the holiday weekend and a little fresh snow from last week has certainly helped.

Q: We still want to purchase a condo in Mammoth but the local media is so full of negative things and we don’t think any of that helps local real estate values. Can you give us your outlook?

A: There is no doubt that Mammoth is experiencing some troubling times, but it really doesn’t seem much different from any other period during the last 30 years (it seems like one long Chinese curse). One difference is today we have all sorts of immediate media and commentary. The airport judgment, now more commonly referred to as MLLA (Mammoth Lakes Land Acquisition), is the biggie at the moment. But we’ve dealt with many things in the past, and its all a matter of perspective. I can remember times when the earth wouldn’t stop moving and we wondered why anyone would even come here let alone buy here. Buyers can have good reasons for not buying, and constantly rattling buildings can be a good one.

One thing I am often pointing out to people is that Mammoth and the Eastern Sierra have some serious obstructions to making change. And we will always have them. The powerful Sierra Club and the land use laws and environmental regulations of the State of California are big ones. The sucking sound of the Los Angeles Department of Water and Power is another. The high percentage of land (about 95%) owned and controlled by the government, and the bureaucracy that goes with it, is another. While these entities make significant progress (and daily operating) far more difficult, they are also why this area remains so pristine and accessible. And that may become the most valuable thing of all. It has been referred to as “The Accidental National Park.” (A brief visit to Cabo San Lucas last year, my first in a decade, showed me the ruination of a beautiful resort area to overdevelopment.) But these restraints inevitably create real problems for anybody who tries to do just about anything. I could cite a long list of those broken by the obstructions, and most were truly attempting quality endeavors.

Mammoth survived a million earthquakes in the 1980’s and 90’s. If I had a dollar for every person who told me Mammoth was “going to blow” I could certainly retire. And there is no doubt that the earthquakes and “volcano scare” destroyed real estate values. But the early 80’s recession, sky-high interest rates, and the 1986 tax law changes didn’t help either. Some of those days were pretty crazy, and it did make you question yourself. Today we rarely hear it discussed. And very little property was ever damaged during all of that. The long-time owner of State Farm Insurance here in Mammoth, who at one time had up to 80% of the town insured, said he never had a claim based on earthquake damage. Meanwhile, areas of California that have been devastated by earthquakes, like the Bay Area, still have very high real estate values.

Mammoth has had many other dramas in the past; the MLRA embezzlement case, hantavirus mania, and so many others. The wild swings of snow volume from season to season have always been here, and each one provides their challenge. The last two might be the extremes. Last winter was down right demoralizing. The length of season and volume of snow were just too much. This winter is just the opposite. We live in chaotic times, even for Mother Nature. This year, Mammoth’s high elevation and the Ski Area’s commitment to a high quality snow making system has kept the town from experiencing complete disaster.

Right now the 800-pound gorilla in Mammoth is the $30 million (now $42 million) judgment that is owed MLLA. Many potential real estate buyers are on the fence until this is resolved. The Town may even end up filing for bankruptcy. We’ll see. But just like San Francisco has survived earthquakes, Orange County has survived, and thrived after bankruptcy (anybody here from Orange County?). And Mammoth’s potential bankruptcy wouldn’t be the result of gross fiscal mismanagement. And how far behind are the State of California  and the good ‘ol USA from that inivitability??

Most people really don’t even know what this judgment is all about. I certainly don’t, but I know more than I should. What I don’t think most people comprehend is that this is a catastrophic cost associated with acquiring our new regular air service. The two are closely interconnected. I hope it is worth it. The MLLA judgment is about a potential real estate development that somehow the Town tampered with.  But it is really about capturing air service. Since we all like to blame, maybe we should blame the Sierra Club. My regular readers know how disgusted I am with the whole thing. How did the lawyers who represented the Town at trial ever let the jury even begin to think that a fractional condo development behind the east set of hangars could net a $30 million dollar profit? Especially when the local fractional projects 80/50 and Tallus were already in receivership. I’ve watched lawyers bring appraisers to tears in tax appeal hearings over next to nothing. Did they just forget about cross-examination?

I had a dream that I was negotiating a deal with MLLA to satisfy the judgment. The Town was giving MLLA their development rights and a 100-year lease to the airport land and waiving all the development fees (after all, that’s what the judgment is based on). The Town was canning air service and returning the airport to a modest general aviation airport. We were getting two monkeys off our backs at once. It was genius. I was even throwing in the Bell Parcel for the interest and attorney’s fees. That is a beautiful piece of property but it is greatly compromised for development. These guys want to “acquire land in Mammoth,” so let’em have it.

But alas, I woke up before I could get the deal done. Damn, this would be the deal of my life. MLLA would only go for it in a dream. In the real world they know the development rights and lease are worthless. Rubbish at the time of trial as it is now. And they know the judgment is a farce. Sure, some people screwed up and the whole thing is a parade of unfortunate circumstances, but MLLA wouldn’t give you 2 cents for the development rights and a lease for what they expect to collect $30+ million on. We’re just hosed on this farcical judgment. And MLLA is like a pack of ravenous coyotes stumbling upon a fresh road kill. They don’t want anything to do with Mammoth other than rape and pillage, and once they’re done they’ll be gone for good. We can only hope the karma of the Sierra rains down upon them all. The only question I have left is; do we have one last chance in court, this time in front of a bankruptcy judge, to prove the judgment is a farce?

If the Mayan calendar doesn’t get us, Mammoth is going to remain much the same for the next decade (at least we got our new Chair 5). Real estate values may continue to go down, but probably not by much. It is simple supply and demand. With no new units under construction, the supply will remain static. As an anecdote, last October we brought a bank owned single-family residence that looked great in the photos and was priced in the low $200k range. The property offering was a good opportunity but required a cash buyer and the buyer was going to need additional cash and a contractor competent at construction management. But the photos in the MLS (and Internet) and the price brought a good 100+ buyers out of the woodwork. The property was seriously overbid. The demand, at deflated values and lower price points is real. There are just too many people who want to be here. This demand is greater than in the 80’s and 90’s partially due to the Mammoth Value Pass.  Today’s buyer in Mammoth is not buying on speculation like so many in the 2000’s. The buyers are users and looking for an escape hatch. Most need to escape, and recreate. And most want to “share” with family and friends. Most want income potential to protect the back-end.

Most need to escape, and recreate…

Happy President’s Weekend!