Broker’s Report — November 15, 2019

Broker’s Report, November 15, 2019 — In the past three months the Mammoth real estate market has moved into a never-seen-before position…

One of the first things I note in my bi-weekly sales reports are the changing inventory numbers for homes and condos. These fluctuating inventory numbers can be very telling in the local market. And yes, historically they go through cyclical and seasonal fluctuations. The inventory normally peaks around Labor Day Weekend. The late summer and fall is when inventory numbers typically drop as winter-oriented buyers come into the market and secure a property. Also, many new owners looking to place their properties into a nightly rental (STR) scenario like to purchase at this time of year with the idea of having their property ready for the “prime time” rental season and enjoying good cash flow from the start. And ultimately, some properties that are not selling come off of the market to become seasonal (6-8 months) rentals. And some simply come off the market because their owners choose to not be on the market during the cold and snowy months (usually a mistake). 

The most significant and interesting aspect of today’s Mammoth real estate market is the disparity in inventory numbers between single-family homes and condominiums. This may be a first. The disparity isn’t in the total numbers, but the percentages and historic norms. In the past week these inventory numbers have been changing slightly but they have remained rather equal; in the low 60’s. That means there are approx. 60 homes on the market, out of close to 2,200 single-family homes in all of Mammoth. This also means there are approx. 60 condos on the market out of close to 9,000 in the total market. I cannot recall these numbers ever being so close to each other. And the condo inventory total is now trending to below the home inventory, an inversion. This condo inventory being less than the home inventory may be an all-time historic first. It is the first time I can remember it in almost 34 years of being in the business. 

So what is the explanation? The simple answer has to be the ongoing popularity of owning STR properties in Mammoth. The Airbnb/VRBO phenomenon combined with the IKON Pass, combined with good snow years, combined with the ubiquitous “search for yield” economy. All of this has made owning a STR operating condo in Mammoth very popular. In the midst of it is a “wild west” environment of competing rental companies and competing rental strategies. And the demand, especially during peak periods, is in excess of the supply in Mammoth Lakes. 

And what makes the whole STR strategy additionally attractive to so many is simply the opportunity for usage too. The revenue and tax benefits are one thing, now coming to Mammoth on a regular basis is part of the “business plan,” and often considered a business expense.

This entire market condition has driven condo values up in the past 36 months. Meanwhile, single-family home market has been relatively stagnant. The opportunities under $500,000 do  remain scarce. But from $600,000 and up there is solid inventory and much of the market is selling well below replacement value. These properties cannot be rented in a STR arrangement.  At some point buyers may recognize these homes as good values.

But some condo values may be peaking. The smaller units—Studios and 1-bedroom units were the first to accelerate in value. They have proven to be excellent STR properties. And when purchased at lower values, have potential for strong return on investment. These values have now peaked in the low $300,000 price range with some apparent softening in the past few months. The recent demand in the market has been in larger units priced in the $400-700,000 price range. These units have lesser daily demand but can bring hefty nightly rental rates during peak periods. And obviously, they can accommodate larger groups and families. With an overall decline in inventory, there are a fewer number of these properties available on the market. 

Another important part of the STR market is the condo hotel properties. Values have moved up but each segment of this market is a bit different. The Village units, comprising of properties at Lincoln House, White Mountain Lodge, and Grand Sierra Lodge, have moved upwards in value in the past 24 months. But they appear to have leveled off in the past few months. The 1-bedroom units rent very well. They have plateaued in the low-to-mid $400,000 range depending on location, floor level and view. The 2-bedroom units have stalled into the ~$600,000 range. 

The units at the Westin Monache are an entirely different story. These properties are very popular as rentals. The entire facility is very popular. Values have risen well off the lows of earlier this decade. But there are many complicating factors. The individual units and the entire facility now are undergoing a Westin mandated “refresh.” This action has stagnated values and sales activity. The units are still renting very well but are facing a major financial assessment for the interior unit upgrades. These upgrades should begin next spring. The assessments range from $30,000 to $60,000 depending on the size of the unit. 

The Westin front desk operators have softened the financial blow by offering a combination of financing including against future revenues, discounted management fees, and the application of past reserves going towards the assessment. Most owners have agreed to the “refresh” assessment. But the whole situation has caused many would-be sellers from listing their properties. The market activity since the announcement of the assessment has been almost nil. The immediate impact to values appears to be close to the dollar value of the assessment, some more and some less. The truly amazing thing at the Westin is that many of the Studio units are now averaging 300 nights of occupancy per year. That is 80+%. This occupancy rate is unheard of in mountain resort communities.

The condo hotel units at Eagle Base are another story. There are currently no units for sale at Juniper Springs Lodge. That is amazing. The property and management have matured over the past 20 years. The revenues are strong but not as strong as the Village. And the most recent sales don’t show as much appreciation as the Village. 

As for any new condo hotel properties being developed; the YotelPad was marketed heavily all last winter and into spring. Their “sales launch” did not yield the enthusiasm that they had hoped for. They shut down the sales efforts in summer and haven’t been heard from since. But they will be back. The project is likely to be redesigned based on all of the feedback they have received. There will be a new sales team, likely one of the major brokerages in town this time.

As for the other “rumors.” The Aspen Ski Company folks now own the property next door to the Westin and they desire to develop a Limelight hotel there. Whether they look at the Westin occupancy numbers and figure they can risk building a pure hotel or a combination condo hotel is yet to be seen. The very high construction costs here in Mammoth Lakes are still a major obstacle to development. So far, no new plans have come forward. The existing Village parking lot has new ownership and they are rumored to be proposing some Marriott brand. But nothing definitive. The “eyesore” Berner Street property behind the parking lot has also changed hands and they are looking at developing a 101-room hotel. We’ll see. Meanwhile, the Sierra Center Mall on Old Mammoth Road is in the feasibility and public planning stage of redeveloping that property into a 164 room “pure” hotel. That would be nice.

Ultimately, what will drive this growth and development? The local, privately owned condos are filling a substantial amount of the STR demand. These separate condo rentals are very popular and convenient for many guests. They “feel like home” for many guests. I don’t expect the supply to decrease. I also don’t expect demand to increase significantly. The Ski Area believes they can get to 1.8 million skier days by 2024. But the community and Ski Area cannot add that increase to peak periods, it has to come during periods with less demand. So how much demand for new units is there? The potential developers will study it. We’ll see. Others believe we are at “peak” tourism and rental demand already.

But for now this demand for condos and the STR business remains high here in Mammoth Lakes. The facts and numbers certainly prove it out. The ebbs and flows of tourism will inevitably shake-out some participants. But the core appears very strong. We have also seen that the numbers, both rental revenues and market values, do hit a ceiling at some point. As long as rental revenues are solid, interest rates remain relatively low, and condos sell for less than replacement and less than 15 years ago, I expect this market activity to continue on.

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