Mammoth Real Estate Q&A — On The Shoulders of Delusions

This Mammoth Real Estate Q&A appears in the Thanksgiving 2017 issue of The Sheet

Q: Okay, it has been six months since the announcement of the sale of Mammoth Resorts. It doesn’t look like much has changed. Are there improvements and development in the future? What are you seeing?

“We can learn enough from history to bear reality patiently, and to respect one another’s delusions.”                    from The Lessons of History by Will and Ariel Durant

A: Respecting one another’s delusions might be one of the greatest challenges of our time. Mammoth is certainly no different and it becomes increasingly difficult to respect many of the modern delusions here in Mammoth. The new ownership in this “company town” may or may not make any significant difference. It is all yet-to-be seen. I am hopeful. Perception is everything (or nothing) at this point.

So far the ownership change has brought nothing tangible but I’m sure they’re busy organizing their new company. Our sister resorts at Squaw Valley and Alpine Meadows recently announced they will build the “California Express” gondola that will service their combined 6,000 acres of terrain and greatly reduce vehicle traffic, giving further protection to the local wildlife, etc. as well as substantially enhancing the entire skiing experience. Mammoth should be so lucky.

Maybe the past acquisitions can give us a hint about what is to come. The Ski Area acquisitions in 1996 and 2005 were both quite different. In 1996, the local real estate market and the community as a whole were just getting some legs after a deep recession. Despite the marketing mastery of Intrawest there was almost no immediate impact to the real estate market (despite being told we were now On The Shoulders of Giants). Looking back that was a brilliant time to buy Mammoth real estate.

The construction of the first condo hotel property didn’t move the market either. It took 3-4 years of hype and (more importantly) the maturing of the baby boom generation into their “big spending years” to truly move the market. Ultimately, the depressed economy of the early 1990’s along with intermingled drought years were a bigger factor than the immediate ownership change.

The 2005 acquisition was at the peak of the economic and development cycle. Money was flowing freely. Mammoth real estate prices were significantly higher than today. The local market had stalled in the summer of 2005 but launched after the October sale announcement. We were led to believe Mammoth was destined to be one big heavenly bed. Values rose another 10-20% over the already record highs.

But the macro economy soon went south and the hotel plans for the “W” and the Ritz-Carlton got shelved. Looking back it was quite delusional. I keep some special mementos as a reminder. Then a few drought winters stymied everything. Development has been relatively stagnant ever since. So once again, the macro economy was a greater influence than new the ownership. Will that happen again?

The current market conditions are slightly encouraging for anyone with an eye towards development. Most Mammoth properties have been selling in the 60-70% range of peak (~2006) values the last few years. But many segments are now rising. There are still plenty of properties selling below replacement value. That doesn’t create an attractive environment for development. Values in the condo hotel properties need to rise further before developers will find it worth the risk. And there is so much quality opportunity out in the “real world” that Mammoth could be shunned altogether. And hurricanes and wildfires are driving up the cost of construction.

The market conditions downright suck for local residents who don’t already own. The bottom inventory of the condo and single-family markets have been cleaned out in the past 18 months. The cheap condos that have always been the mainstay “first rung” on the property ladder are gone. The VRBO/Airbnb driven ownership crowd has made sure of that. How far up the price curve they go is yet to be seen. Rising prices in the low-end of the condo market are now eroding the return on investment potential in this segment.

The “pure” second homeowners remain a significant portion of the current market. They don’t rent and many are sporadic users. There are literally thousands of properties that sit unoccupied a great percentage of the year. Many would make excellent local resident housing and many could be producing substantial revenue including bed tax. And potential tax law changes are unlikely to make any difference.

With the recent Ski Area ownership change, the operative question many are beginning to ask; Are the new owners really compelled to do anything?? Mammoth is an enigma. The enterprise brings down big financial numbers as it is. Especially when it snows. What capital expenditures and improvements are going to make the enterprise more valuable? We’ve heard some promises, but we’ve heard those before (some for decades).

I’ve advocated for the completion of the gondola system for years (if you don’t understand it, look closely at the Hart Howerton plan). I believe it would greatly enhance Mammoth real estate values, especially for properties that gain improved entry to the Ski Area. This includes not only the properties near the lift bases but also those with quick shuttle access to the lift bases. Completing the gondola system would improve everybody’s lives in Mammoth.

But is the gondola system going to make them more money? Squaw and Alpine must think so. The nightly renters at Eagle and the Village would certainly see the value and might be willing to pay more for their rooms. But the point is that Mammoth Mountain has always been able to muddle through and still make money. And if it doesn’t snow the new conglomerate has other resorts to depend on.

But you can be sure they want to develop some real estate. The Main Lodge, the Village periphery, Sierra Star and Eagle are all massive development opportunities. But what (or who) is going the drive the enthusiasm? More “talk and promises” certainly isn’t going to do it. They need to work the old Intrawest playbook. That includes doing something.

Meanwhile there are other (development) delusions. The Main St. revitalization plans are one. The planners and other proponents think the property owners can just raze their existing buildings and develop new (very expensive) multi-story buildings with covered parking and apartments (affordable housing) on the upper floors. In today’s vernacular; REALLY??  Forget that the property owners (and their tenants) already can barely keep up with all the expenses related to their existing property. But no, let’s rebuild and load up with crushing amounts of debt that can’t be serviced in even the best of times. Have any of these people actually owned and operated a business? Especially one in Mammoth? There are only so many trust funders to go around.

And one of the big proponents of this spendy Main St. delusion is Mammoth Mountain. Ironically they want everyone else to make impossible capital improvement expenditures when they themselves are the least likely to do so (as history has proven). They somehow seem to think the local property owners need to make the first step. Makes me think they just want to buy the newly improved properties out of foreclosure.

Even the new Grocery Outlet development rejected the concept. I’m sure they realized it was cost prohibitive to develop this type of building. What makes it work for them is they purchased the land cheap and are building a modest and efficient building. And while they are a “family business” they have private equity backing (and smarts) too. Hopefully they can make it work. Mammoth needs an alternative. But they were savvy enough not to be delusional.

Substantial redevelopment costs serious money. Pie-in-the-sky planners are great at painting rosy pictures. But do they want to take the risk? No way. That is why they are planners. Long-time Mammoth property owners and business people will surely be reluctant. Maybe the new owners of Mammoth Mountain need to show us how the infusion of large amounts of capital will provide a handsome return. Sometimes that is called leading by example. But now I’m delusional.

Real estate development is not a simple game. Many critics of our most hated real estate developer like to point out that he started with a good pile of money. It certainly helps, but it doesn’t guarantee success. History is littered with failed development and developers. Mammoth’s history is filled with many of what used to called “Mammoth millionaires”; just come with $5 million and leave with one.

The Mammoth Clearwater/Old Mammoth Place project reminds me of another delusion. The property was purchased at the top of the market and in the wrong location (not in the “resort corridor”), etc.. They basically want to build the Bellagio Hotel surrounded by early 1970’s condos. But we’re forging ahead! And everyone should follow.… Successful redevelopment requires all of the stars coming into alignment. The Village, despite many hiccups, has proven to be successful redevelopment. But a great percentage of the risk was born by the initial condo hotel owners. And many of them ended up in foreclosure or short selling.

Wherever this next saga is taking us is anybody’s guess. The larger economy and California economy will certainly play their role. There are plenty of development and redevelopment opportunities but the construction and “soft” costs in Mammoth remain very high. And the local economy is seasonal. It may be a case of “The more things change,…..

In the meantime we’ll try to respect everyone’s delusions. They make for great entertainment.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.