Mammoth Real Estate Q&A — Hot Beds For Wonks

This Mammoth Real Estate Q&A appears in the Labor Day Weekend 2019 issue of The Sheet

Q: We are local residents and own our own home but we have been following the condo and nightly rental trend in Mammoth, and how it has increased values and activity. We also watch the Town’s marketing expenditures and production of bed tax. We think they have all reached a peak, at least cyclically. What does your contrarian indicator show?   

A: Mammoth is always full of surprises. Will it snow this winter? Or will it be a drought year? Or will there be too much snow? This applies to the local real estate market as well. You are correct that the Mammoth condominium market has seen strong price appreciation in the past two years. Much of this activity is being driven by the current state of the short term rental (STR) economy and associated trends. 

In the past 24-36 months there has been an interesting dis-connect between condo values and single-family home values in Mammoth Lakes. Condos have moved up in value and single-family has remained on the flatter side (of course, there are always exceptions in this market). Buyers of both are actually getting solid bargains, relatively speaking. But upward condo values are being supported by their ability to produce substantial revenue and provide personal usage for their owners. 

The single-family market offers a variety of properties and price points (except inexpensive). Relative to the cost of vacant land/lots, government fees (and delays) and construction costs, the values are hardly inflated. Especially at today’s low interest rates. And I still meet people who think all of the natural and undeveloped land surrounding us is available for subdivision and homesites. They don’t realize Mammoth Lakes and other eastern Sierra communities are essentially private property islands.   

And as I have been reiterating, both the local homes and condos are selling well below their peak values of the mid 2000s.

The massive, record amount of Mammoth’s TOT (bed tax) is significantly due to the many property owners who have upgraded their condos and aggressively market and service their properties in this new STR age. It has become almost trendy, and cultish. They are generating strong revenues for both themselves and the Town. The services of VRBO, Airbnb and the like have certainly helped facilitate this. But there are a “lot of working parts” and a massive workforce behind it all. The local marketing wonks believe they are the genius behind the big numbers. But there are other factors to consider. 

Some months ago (March 9, 2019 to be exact) The Sheet published a graph and data showing the marketing dollars spent and the TOT collected in the past 20 years (and my brain can go back at least 30 years on this subject—anybody remember Ralph McMullen?). Evidenced in the graph and data, there is little (if any) true return on investment on the extraordinary marketing expenditures of the last 10 years. My business professors warned against working beyond the law of diminishing returns. The Town fathers seem almost enamored with it.

But The Sheet left out a couple of critical data points in their analysis. One is inflation, and the other is the population growth of California. I bought a brand new 4 bedroom / 2.5 bath, 3-car garage home from John Hooper 20 years ago for $330,000. It would cost three times that today. A premium four wheel drive truck has more than doubled in that time. And California has grown by more that 10 million people in the past 20 years (an approx. 33% increase). Do any of them come to Mammoth? Of course they do, they get bombarded with Mammoth marketing everywhere they go. And half the people in SoCal have some sort of Mammoth sticker on the back of their car.

So while the TOT numbers look great, in actuality they have simply kept pace with the societal trend lines including inflation and population growth. The maturation of the resort as a whole hasn’t hurt either. If you put Mammoth Mountain’s revenue numbers on the same graph you would see a similar trajectory. The Town marketers might argue they helped this, but MMSA was pulling down massive skier visits long before the Town incorporated and had a marketing budget.  

But what has helped facilitate all of this the past ten years are all of the local condo owners who have upgraded their properties and made Mammoth’s guests feel comfortable; like staying at someone’s mountain home. The Ski Area’s consultants Hart Howerton reminded us a few years ago that we are ~1,000 transient beds short in this community. How many new “hot beds” have been developed the past 10-12 years? Almost none. Even the newest and possibly the nicest hospitality facility in Mammoth, the Westin Monache, is undergoing a major and costly “refresh.” 

Marketing is one thing, providing quality accommodations is another. The newest generation of STR property owners have simply supplied the guest demand. Without these owners, the marketing would be counterproductive. And with significant new development stalled, the community should be grateful this current STR trend is here helping to facilitate all of it. But are we at some sort of peak? Let’s explore this.

To start, reported on August 3 that while occupancies have been solid in 2019, the prior week saddling July and August (and presumably peak summer business) was slightly down year-over-year in three key metrics; occupancy, daily rate, and revenue per available room. It might be an anomaly, but it might also be an accurate metric of plateauing tourism nationwide. 

What about potential plateauing in Mammoth? Or potential decline? The wildcard is always snow. But our new friend the IKON Pass does bring a whole new dimension. There is no doubt it played a role in Mammoth’s very successful 2019 winter and spring. Great snow and the IKON are profound for local tourism numbers. Many skiers and snowboarders came to Mammoth who had never been here before, and it was all because they had an IKON Pass. There is no doubt they appreciated what they experienced. It is likely they will be back. And they will bring their friends.

Mammoth Mountain recently stated that the IKON Pass sales in SoCal are “through the roof” for next year. They also stated that their goal is to average 1.8 million skier days by 2024. So where are all of these guests going to stay?? It sounds like occupancy rates should rise. And yes, there are a couple dozen brand new townhomes in the Mammoth inventory at Canyon Lodge and Creekhouse. But odds are that at least half of them won’t be on any sort of rental program. And any new potential hotel-type facility is still at least three years away, and maybe more.

Assuming reasonable snow conditions, more STR units are needed (which also doesn’t help the workforce housing shortage). The increased demand should also drive-up the rates because the dynamic pricing algorithms will certainly be paying attention (oh, how the business has changed). And guess what? The Town’s TOT should increase right along with it. Hopefully, it doesn’t go to their heads.

The IKON Pass program has also leveled the surges in business by virtue of the black-out dates during the traditional peak holiday periods. The Pass also brought more skiers and riders on non-weekend days, especially Fridays, Monday and powder days. As a 30+ year season pass holder, I certainly noticed a difference. For the 2020 winter I’m changing my Mountain access game plan just because of it. So have we reached any sort of peak? Probably not as long as there is snow.

And as we have learned, the Alterra game plan is to push more summer activities on the Mountain; the Via Ferrata, the (soon to come?) Mega Zip, a roller coaster, and more. These are not snow dependent. All of that, mixed with an increasing number of popular summer events will only create more demand in the summer and fall. This too should drive occupancy and rates.

The Bishop airport status is another factor in moving beyond our peaking numbers. It might be part of the MMSA optimism to attain 1.8 million skier days in the next five years. Having truly dependable air service could finally push Mammoth in the direction of a real destination resort. The IKON Pass will play a roll. Hopefully, all of the players are figuring out how it is all going to work. There are opportunities for everyone.  

The recently filed TBID (Tourism Business Improvement District) litigation shall be enlightening. It has taken six years for a challenge to finally arise. This specialty tax is also dumping many millions into the Town’s coffers. If the challenge is successful, I would imagine it would be compensated for in TOT and sales tax. Trimming marketing expenses and the air service subsidy would be taboo. But it should take years to sort out. I’m betting on the completion of the Village/Eagle gondola to come first. And maybe we’ll have the Airport settlement paid off by then.

So are these short term rental revenues and bed taxes peaking?? Only the future will tell. But for now the numbers are impressive. Besides the weather and snowpack, the state and national and global economies will play their part. Lower interest rates will certainly drive some cash-out refinancing and that can certainly keep the party going. And people still clamor to ski and snowboard even in recessions. And Mammoth remains on the affordable side of that equation for the value received. And again, the dynamic pricing algorithms will be making sure the pricing is all competitive, for both owners and guests.

Meanwhile, the community needs to appreciate the current success and bounty. It sure beats bankruptcy. 

Happy Labor Day Weekend!!   

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