Real Estate Q&A: Main Lodge Moar!!

This Real Estate Q&A column is slated for publication in this weekend’s edition of The Sheet

Q: I read about the “Main Lodge” land trade in the local papers but there really isn’t that much information. The local Congressman is asking for support to get the Senate to vote on it. Further down Google I found some older information on your blog, from 2006. Since you seem to have some history on it, my questions is this; What do the regular people of Mammoth really hope to benefit from this land trade??

A: There was a blog post from early 2006 named “Oil Sheiks, Hong Kong Billionaires and Hedge Funds”  that explained some of the nuts and bolts. That was almost nine years ago. Nobody really cared back then, everybody was making too much money. I’m told that nobody really cares now, they are “too busy trying to put food on the table.” But that time frame is a good starting point for a perspective on this proposed Forest Service land exchange. And it should be getting close to approval. But who really knows if it is on anybody’s radar in drama town (Washington DC)?

As you will soon see, this is a VERY long term proposition. We watched Tom Dempsey and Jim Ognisty toil and not live long enough to see the Snowcreek golf course exchange come to viability. And it still may not be viable for many years to come. But this new land trade/exchange has a different set of motives and cast of characters. All of the public officials have been incentivized to support the exchange; from the County Supervisors to our reps in DC. Early on Rusty Gregory used to speak of the “The 65-step process” to get this type of land exchange completed. Who knows what step he’s on. He might be ready for a 12-step program by now.

But your question is about how this potential exchange will benefit the average man in Mammoth. It is a good question and there is plenty of conjecture. Right now the public owns the land around the Main Lodge and the proposal is to put it into the ownership of a Wall St. type-entity like a hedge fund. And I don’t think any hedge fund cares about the average person in Mammoth. It isn’t their job. Further, I’ve met many of the Forest Service types that orchestrate this stuff and quite frankly I wouldn’t trust them to facilitate a deal for a case of bananas. So in my opinion the public isn’t well represented either.

The proponents and public officials like to promote “the significant benefit” that the local people will glean from this exchange. According to them the primary benefit will be the new property tax revenues created by the new tax assessment (valuation) of the 21 acres. Rusty calls it the $600 million dollar “remodeling of the Main Lodge.” The County Supervisors drool over the potential increase in property tax revenues, and they can use the money. The increased tax revenue would certainly help all of the people living in Mono County.

But this is mis-leading. You have to know what the long-term intent is. I’ve seen conceptual drawings but see the real estate reality clearer. I know how all of the “makes sense” (financially). The $600 million “remodeling of the Main Lodge” doesn’t mean the Ski Area envisions some incredible Getty Center-type new Main Lodge. In fact, the ski industry trend is for smaller, more efficient satellite buildings positioned on a nice open plaza. The money is in the potential surrounding condo hotel properties that can provide both short term and long term cash flows to the enterprise. The “remodel” would push the requisite features of the current Main Lodge into smaller, far more efficient spaces (that are actually easier for people to utilize). We already see some of those structures in place. The rest of the 21 acres would be slated for pure real estate development. Developing and selling real estate (condos) is why the land needs to be privatized. Lenders don’t typically lend on properties on leased land, both for the developer and end-user/owner. And how precisely this land would be developed is dependent on the trends and demand of the market at the time (the future is uncertain).

The perceived trend and demand is for condo hotel units. These units could vary in size from studio units to very large multi-bedroom units. Guaranteed everything will be “luxury.” But the demand for condo hotel units is at equilibrium here in Mammoth. Rental revenues are up in these properties but values are essentially flat. The rental revenue may be logically maxed out (resorts are notorious for limit occupancy). Old “investors” are selling to new “investors” (which is telling). If rates on CDs were back to 5% the demand would be far less. If there was greater demand there would be construction occurring now. In a recent public hearing, a proposed Village condo hotel development was described by the proponent as at the “low end of viability.” There it is. But who knows what the demand at the Main Lodge will be in the future? Maybe it will all become Hooper homes; coming soon GrayLodge. Or maybe a new gondola to Big Bear will create different demand.

Let’s do some back-of-the-envelope math on this proposed $600 million property tax increase created by “the remodel” that will create all of this public good. Start with the land value. I’m not aware of any appraisal done on the 21 acres. The exchange probably has to be approved first. But I would shoot from the hip and say that land is worth about $4 million per acre. It is extremely valuable considering the lift system, the state highway and other amenities that surrounds it. So say the Ski Area makes another $20-40 million in new improvements that the demolition of the existing Main Lodge displaces. That means the $600M figure is reliant upon approximately $500M in real estate development (and sales). And put that into some ballpark perspective; $500M in today’s assessed value is Juniper Springs Lodge, Sunstone, Lincoln House, White Mountain Lodge, Grand Sierra Lodge, the Westin Monache and the Village ground floor commercial all rolled into one. And all of that took ten years to construct in the best market Mammoth has ever seen and will ever see.

So the best case scenario is this $600 million in new tax base will come on line in a decade. But wait, best cases rarely work out. Look at Tom Dempsey. He bought the Meadow in 1977 and entered a 25-year development agreement with Mono County. He thought it would take him less than 25 years to build-out the project. Here we are 38 years later and phases 7 and 8 still have decades of development left. It is going to be a 60-year build-out. Meanwhile there are still condo hotel sites available all over town; Village area, Lodestar and Eagle (and remember, “the low end of viability”). Vacant property zoned for condo hotel has essentially become default open space. And is the Main Lodge that attractive for a condo project?? Basically, that $600 million tax base won’t happen in anybody’s immediate lifetime. And who knows if we’ll even be skiing and snowboarding in 20-40 years, I’m looking toward the future and a personal hovercraft and then a virtual reality implant that I will allow me to travel the universe. My old knees will appreciate that.

The proponents and public officials like to talk about the jobs this will produce. They said the same thing about the Village and hindsight really is 20-20. The out-of-town contractors are long gone. Did they leave anything meaningful for the local economy? And the new jobs (and dollars) in the Village are just displacements out of the balance of town. The tourism efforts of the past 25 years are finally paying off. There was no magic button pushed, just persistence. Increasing business in the slower seasons is the answer and clearly is improving. That is why we envisioned (hallucinated) chasing convention business years ago, to bolster the shoulder seasons. But there is still a limit to the persons-at-one-time (PAOT) Mammoth can handle. That isn’t going to change. We’ll be re-visiting the capacity issue again and again (Intrawest finally figured it out and split town). Even the golden goose of skiing is moving to competitive “airline pricing.” That is the newest corporate answer to smoothing out the business. So they can talk about the job production, but in reality all they can hope to produce is fewer crappy jobs.

So how else can this proposed land exchange benefit the regular people in Mammoth? Maybe the ski experience around the Main Lodge will improve. Try to make it more like Deer Valley I’m sure. Ski Hosts will be replaced by robots to usher the guests to the slopes. And in reality, the old Main Lodge has probably been great for all the local residents. It has served them well. It has been an accessible “second home” to many and has provided decades of great experiences and memories at an reasonable cost.

Twenty plus years ago I wrote a real estate column and I quoted the line “We are looking for something that has already found us.” It was true then, and it is true now. Our corporate masters will continue to drive for profits anyway they can (MOAR!). The environmentalists and government officials (and mother nature) will push back. In the middle is a wonderful balance. Unfortunately, we rarely recognize it for what it is. Maybe more geotourists and great micro brews will help us see more clearly. We need to be thankful and appreciative for what we have. The “next” thing isn’t our salvation.