Broker’s Report.September 25––No On Bankruptcy! and The Election Chill

The Town of Mammoth Lakes has announced the terms of the settlement with MLLA and Terry Ballas. The details can be found on any of the areas news outlets and the Town’s website. As Mayor Matt Lehman was quoted weeks ago as saying, “Nobody is going to be happy with the settlement.” But the Town will not be moving forward in bankruptcy court and (most) everybody should be happy about that. The payout is basically $2M per year for 23 years. The way our Federal Reserve is printing money, that payout will become inconsequential in a few short years.

The sum total of the settlement hasn’t been realized by most including myself. There will be the first of many Town Council meetings Thursday night (Sept. 27) for public information regarding the settlement. The bankruptcy judge who handled the most recent mediation will be in attendance. In summation, her mediation stance was that the Town had a poor chance in the  bankruptcy court and should settle with MLLA and avoid the bankruptcy process altogether. It will be interesting to hear her speak. I’m sure the tape of that meeting will be played for many months on the local TV stations.

There are some other details of the settlement (other than the dollars) that are of note. Terry Ballas and Hot Creek Aviation (and MLLA) give up all further rights to the airport property that was granted to them under the original development agreement (1997). The rights revert back to the Town (who owns the property). Ballas turns over the rights and ownership of the airport’s water system to the Town. Ballas receives approx. $111,000 per year of hangar lease monies, that was previously going to the Town, for the next 30 years. This one hasn’t received much attention but Ballas continues to operate the FBO (Fixed Based Operations) at the airport and the enterprise is most likely a “black hole.” (This was part of the original quid-pro-quo of the development agreement.) Ballas will continue on as the FBO and the extra dollars will offset the shortfall. At least that’s the way I see it. The Town needs to maintain the FBO at the airport and this is Ballas’ expertise. So further commercial development/enterprises at the airport are basically done unless airport specific. And the FBO will continue and are now essentially subsidized by the Town.

Meanwhile, the Town has a short fuse to make further budget cuts to pay the annual cost of the settlement. I’m sure they have already started the process (at least mentally) but the rumor is they intend to make it a very public process. The Town Community Development Director just moved on and many of the budgeted expenses for the bankruptcy will now be saved. But some of the Town’s low priority expenses will have to go. There will be public outcry. The Town of Mammoth will move again towards what many think government should be; downsized and streamlined. And of course additional revenue sources (taxation) will be discussed. I can imagine all of this will cause local upheaval. I have said that the settlement won’t be the end of this. Rumor is the Mono County Grand Jury is delving into the role played by the Mountain in all of this (but most of us already know). And some enterprising attorney may figure out that a Mammoth’s citizen class action lawsuit against the Ski Area might be appropriate. I have a feeling this is far from over. But at least it appears we won’t have the bankruptcy black-eye. And if a sale of the Ski Area really is in the works then it might all be settled sooner than later.

None of this can be all that great for the real estate market. As they say on Wall St. “the market hates uncertainty” and we are living in a micro and macro environment of uncertainty. But while the local bankruptcy has created uncertainty, the fellows in Washington DC have created even more uncertainty that is affecting our local real estate market. There are just too many unanswered questions pertaining to taxes, especially for the type of people who buy (and sell) real estate in Mammoth. So hence we have an “election chill” on the market. Transaction volume is down. Despite this being our normally “hot” selling season, buyers are sitting on the fence. Sure, the inventory isn’t great but there are good properties on the market (and lack of inventory hasn’t stopped buyers from buying mediocre properties in the past). And yes, some segments are dismally short of inventory (like single-family under $500K). But current buyer interest is just tepid at best. Maybe that will change with a big snowstorm (and then buyers will be calling and saying “what happened to that property?”). Or maybe it is time for this broker to go fishing.

The REO market has been in a chill too but that appears to be changing. Just in the past few weeks the Trustee’s Sales are increasingly less likely to be postponed. Properties that have been in default (or tied up in bankruptcy) for years are finally being foreclosed upon. And more and more squatters are finding out what a “sheriff’s lockout” is (one eviction this past week the previous owners were in the property for 12 months after foreclosure). But there is still plenty of shadow inventory. And lately, as I drive through the various neighborhoods, an increasing amount of properties appear to be heading down the telltale road of slow physical deterioration/deferred maintenance (dead landscape, peeling paint, new “hillbilly appearance” etc.) that coincides with non-payment of mortgage and taxes that ultimately leads to default and foreclosure or short sale. Many of the loan modifications granted in the 2008-10 era are now re-defaulting; they simply become more underwater. But at least those owners still have a couple of years to squat in their properties.

Speaking of squatting and property deterioration, the national media is beginning to report this same trend in many markets. Los Angeles district attorney was quoted as calling particular banks  “the biggest slumlords in the city” for long delayed foreclosures, enabling squatters, ignoring properties they now own and-all around letting properties and neighborhoods decline. Some of the banks blame the servicers. But let’s face it the banks don’t want to write down the assets on their books and the servicers want to keep collecting their fees. Hence, extend and pretend continues. Thankfully, the “slumlord” effect hasn’t become too bad in Mammoth. Just this past week we’ve started the turn-around on two pretty unsightly properties. I can point to dozens of properties that have gone through the foreclosure process and now look sooo much better than they did the day we took them over. The good neighbors rejoice. In the condo projects these properties are far less noticeable because of the onsite management. One REO condo we manage has been vacant for a couple of years and it was empty for 18 months before that. It is lost in some title issue limbo. But nobody would know. Someday, once it is re-occupied the people who own the condo below it are going to be shocked at how noisy the condo above is.

And on the short sale side of the market, more and more underwater owners who are financially sound but desire to get rid of their debt and obligations are figuring out they can probably qualify for a short sale. They have to take some credit lumps and a 1099 but they calculate the trade-offs are worth it. We have even recently seen true income properties, duplexes and fourplexes, qualify for short sales. Who-da-thunk?? We are truly in an era of the real estate bizarre. And the less experienced agents think this is all “normal.” Short sales for everyone!!… Some short sale buyers are getting really good buys; clean and upgraded properties and the furniture and decor too. But some buyers don’t have the patience or stomach to wait around. But many are being rewarded. As we head towards winter and the holidays, some will get really impatient. Welcome to the Mammoth market.

Despite all of this, I’m also sensing a “They’re Back” feeling. What’s that, who’s back? They are buyers and sellers at the opposite ends of the psychological spectrum. The buyers think every seller is desperately motivated to simply dump their properties at radically discounted prices. They make the excuse, “It doesn’t hurt to try….” They make offers that go nowhere, except in the proverbial trash can. On the opposite end are the sellers that maintain that their property is “so special” that the buyers will fawn over it and overpay. Good luck. Even some of the banks and their short sale negotiators get this attitude. I often tell people “Mammoth is largely a don’t-have-to-buy, don’t-have-to-sell market” but it rarely sinks in. I guess that’s why buyers like well priced short sales and REOs; they know there is a real seller on the other end. It’s also why sellers will respond to buyers who make calculated offers. But for now; They’re Baaaack!  

So we’ll see where this market goes after the election or if we get a big snow dump. My guess is the “fiscal cliff” issues need to be resolved before most buyers make a move. But that may take until after the first of the year or longer. Or maybe if that “perfect” property magically appears in the inventory. In the meantime the process and fallout from the MLLA settlement will be a circus and worth watching, especially because it is the quiet time of year here in Mammoth and many local residents are on financial pins-and-needles. And the later the snow comes the worse it will be. God help us.

And don’t forget, if you would like to receive more timely updates on the Mammoth real estate market, be sure to sign up for my bi-weekly newsletter.



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