Mammoth Real Estate Q&A — Remembering Fear, Greed and Price Discovery

This Real Estate Q&A appears in the Memorial Day Weekend issue of The Sheet

Q: The Mammoth real estate market sure seems to be active with rising prices, low inventory and the best properties seem to be selling fast. So at this point, what should buyers be careful of (the old “buyer beware”)??

A: All of the real estate fundamentals still apply, but the hotter a market becomes the more that type of thinking seems to get tossed out the window. At least by some, and sometimes many. There are changing dynamics in this market including new Ski Area ownership and what might be a change in their “old” way of thinking. And the nightly rental business is ever changing too, and that is a big driver of current real estate values, primarily in the condominium market. That is where the greatest trepidation is.

Location is still the paramount criteria but the value of different locations is changing in Mammoth’s four square miles of privately owned land. Many buyers become perplexed by the variety of locations in Mammoth Lakes. They think they “know Mammoth” but they have missed many of the intricacies and the “features and benefits” that each afford. And the nightly rental consumer is changing their way of thinking as they get to experience the differences.

In 2018, the rising star of locations is all about convenience. At least for those looking to generate all-season nightly rental revenue. It might be a renaissance since convenience is right out of the Intrawest playbook of 20 years ago. But it isn’t all about convenience to the ski lifts. That still weighs heavily, but convenience today is increasingly more about mobility (shuttles and walking) to the fun zones that offer shopping, food and beverage, cultural opportunities, etc. As Mammoth evolves to be less winter-centric, this trend shall continue.

But there is also demand for properties that offer the peace and quiet that some Mammoth locations can offer. Properties on the periphery of town and many of the Snowcreek locations offer that. Many buyers (and nightly renters) are looking for a nice combination of the two; convenience and some serenity. It isn’t necessarily easy to come by. 

Because so few new properties have been constructed in the past 10 years (especially condominiums), buyers have been forced to consider older properties. Many of these have quality locations for overall convenience, but most are in need of major remodeling or updating. Contractors and materials are in demand making the remodel process challenging for many new owners. Patience is a virtue, but frustration can easily follow. 

Some new owners are bringing in their own out-of-town contractors. That can be effective, or not. Properties that have already been substantially remodeled or are relatively new are bringing premium pricing at this point. That should continue. But many buyers who want to get into the nightly rental business also have defined ideas as to how to remodel and reconfigure to attract the maximum rental demand and revenue. Balancing all of that can make for tricky business decisions. Nobody is immune from mistakes.

Mammoth’s new Quality of Life ordinance has impacted the rentability of some units. Overall, this was necessary legislation due to the surge of “wild west” renting driven by the likes of VRBO and Airbnb. Add to that the Town’s new digital consultant who monitors all of the online marketing (and compliance) of nightly rental properties. This industry, and the properties within it, are under the highest degree of local scrutiny and regulation ever. Properties with non-conforming issues can be compromised. Buyers need to understand these issues.

The nightly rental industry continues to be in a state of “competition and disruption.” 

Airbnb has been the biggest disruptor and almost every rental condo in Mammoth is listed there. But the industry pundits report that the renting consumers are waking up to the fact that they are now paying extra for booking through Airbnb (and VRBO). Conjecture is that the consumer will increasingly pursue booking directly with the owner, especially in “repeat business” markets like Mammoth. So owners looking for maximum return will need their own websites and Facebook pages. The industry will evolve even more in the future. If it isn’t disruption, it will be competition. 

Mammoth has seen solid tourism the past two years. That has enhanced the return on investment (ROI) for many of these nightly rental condos. The Town’s intense (and expensive) marketing efforts have contributed to that. But it is apparent that the southern California economy has plenty of discretionary spending available and Mammoth has certainly benefitted. This can cycle over the years (it always has) so relying on peak revenue numbers warrants caution. Buyer beware. Vacation rentals are not the stable, triple-net leases pursued by savvy investor types. But they can provide excellent revenue and owner usage. That is the plum.

The recent higher condominium values will certainly impact the ROI, and probably not for the better. Potential buyers need to understand that values and nightly rental revenues aren’t likely to rise in lock-step.  Also consider that “dynamic rental pricing” (pricing based on demand and supply) becomes the norm with new software and apps available to just about every owner and agency. With fluctuations in weather (and global warming??), snow conditions, the economy, etc., and there can be negative and varying impacts to the gross and net revenues.

The balance of 2018 will be all about price discovery. Rising mortgage rates may have some impact. But what the buyers are willing to pay for new listings is yet to be seen. So far the spring has produced some new listings at “fair” prices and plenty of them have sold. But listing prices that are stretching well beyond the recent comparable sales may linger on the market. Many of the fervent postcard-sending local Realtors may be setting higher expectations for sellers. Those expectations may not be met until the pre-winter sales rush. Or not at all. We’ll see. 

It is up to the pool of buyers where prices go. But these buyers should be forewarned not to “just buy anything” if the market heats up. That rarely ends well. Buyers need to be calculating with their purchases. Serious buyers need to do their homework and need to be paying attention.

Most of Mammoth real estate is still selling well below the peak of 2006-07. For condos it is running in the 70-80% range. So most southern California buyers see value in the market. Without any major economic hiccups or other “black swan” events, the values may be heading back to those peak values. Many California markets have, so it isn’t so unreasonable to think Mammoth should.

No one knows what the impact of higher gas prices and potential inflation will do to both real estate and nightly rentals. The success of the Ikon Pass may overwhelm all of it. Cheap ski passes can influence the local market in many positive ways, including demand for real estate. We’re going to find out. And the lack of substantial new construction (especially in the condo hotel market) will keep the supply limited to existing properties. 

Then there is the Alterra effect. The new zip line and proposed changes at Canyon Lodge shouldn’t affect anybody’s inherent real estate values. But some substantial improvements at Eagle Base (after 20 years of talk) could certainly impact values in that periphery. Real capital investment programs or substantial “cultural” changes (not talk and promises) in the resort could make a difference community wide. If it happens, it can’t happen soon enough. 

For now the Alterra effect is mostly hyperbole. We’ve been here before. And like before, these Ski Area acquisitions can happen in front of national economic disasters and that affect can be profound. Today’s buyers shouldn’t be buying just on Alterra hype. But the breadth of this new company brings stability and an exchange of knowledge, experience and customers that Mammoth has never experienced. That should be a good thing. How it will equate to higher and lasting real estate values is uncertain. But once again, some buyers are purchasing simply on the hopes and dreams of new Ski Area ownership and perceived added value and direction. 

And lastly, the luxury home market remains strong in Mammoth. If you weigh the cost and availability of good vacant lots, the cost of quality construction and the time it takes to design and build, many of Mammoth higher-end home offerings look like bargains. And this segment of the market is an odd mix of “peace and quiet” and convenience too — they rarely come together. These buyers also need to carefully consider their desires. But as we often say in Mammoth, “that is a quality problem.”   

This weekend, remember those who served our nation. And next week, please vote intelligently.

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