Mammoth Real Estate Q&A — STRs Compromising Future Hotel Development??

This Mammoth Real Estate Q&A appears in the Presidents Week 2020 issue of The Sheet.

Q: We found your last column about short term rental (STRs) condos quite interesting. What are you seeing as the best locations in Mammoth for the most successful STR units and the owner’s  rental businesses? 

A: This is a question with no definitive answer. Success can come in many locations, shapes and sizes. And the term “best” is subjective when it comes to Mammoth condos. I’m sure there are local STR owners, Airbnb superhosts and a variety of rental managers who have their strong opinions. But with the substantial variety of condominium units in Mammoth, picking one specific location or even unit size to be “the best” is a complicated task. And I’ve observed sophisticated investor-types study it and struggle with it.

Before I get to the bigger discussion about where is “best”, there is a very recent year-end (2019) review and report of the STR and hotel industry by AirDNA and CBRE (the Coldwell Banker commercial real estate division) with some enlightening information. Short term rentals were a $115 billion industry in 2019. The success of the “alternative lodging market” has the hotel industry taking note. The commercial real estate industry has acknowledged “given the undeniable change underway in the lodging sector, historical hotel valuation underwriting practices will no longer suffice.”  That is a serious admission.

This recognition of the impact of STRs on the hotel industry is profound and may indeed be significant for the future of Mammoth. Especially in light of Mammoth’s existing condominium inventory, the longstanding zoning overlays which permit nightly rental, and the Town’s unquenchable thirst for tourist paying tax dollars. 

The hotel industry also recognizes that public companies (like Vacasa), venture capitalists and traditional real estate investors are fueling this trend. And online platform companies like AirBnb, and Expedia (HomeAway/VRBO) have evolved and are directly competing with hotels. Locally, even Alterra, through their Mammoth Hospitality arm, is making aggressive moves to further participate in the STR business. 

All of this has the traditional hotel industry in a tenuous position. The two key hotel industry metrics are ADR (average daily rate) and RevPAR (revenue per available room). According to the reporting, the hotel industry has not seen an increase in ADR since 2016. And since mid-2018 they see ADR deceasing. And they don’t feel they can blame the economy. RevPAR is down too and the industry blames new hotel development and STRs for that. 

According to the report, the new supply of STR units grew by 26% in 2019, down from 39% in 2018. The shining star of the growth in the STR industry was the resort and rural marketplaces. STRs are apparently more “complementary” to these resort locations. There is more differentiated product too. And a large percentage (57%) of these STRs do not have a hotel within one mile of their location. In many of these areas an STR can have better occupancy rates than a hotel. And interestingly, many of these STR properties have been in existence for decades. The growth and market penetration is now being driven by the popularity of online booking platforms.

The report highlighted that while the guests to these resort and rural markets are looking for affordability and location, they are also looking for local experiences (“localism”), home-like amenities (including kitchens and laundry), and uniqueness. And “unusual” experiences are popular too.

This reporting also shows how vast the market really is; there are close to 2 million STR units in the United States listed on Airbnb and VRBO. The guest capacity of those STRs is more than 10% of hotel/motel capacity in the country. And interestingly, for the past two years, Los Angeles has the largest number of STRs of any major metropolitan area, including New York City. That’s close to home. With such broad market penetration of STRs, specific locations that will outperform others is difficult to assess. And if there is such an obvious choice, it is likely to come with a big price tag. 

With all of that said and back to the theme of what is “best” in Mammoth, the Westin Monache here in Mammoth is a condo hotel and is an extremely popular place for visitors to stay. All of the rooms are individually owned. The occupancy rates and gross revenues are impressive. The Studio units perform at an occupancy level rarely seen in a mountain resort community. Many are occupied at or above 80% of available nights. And in the last year the 2 bedroom units are clearly performing at higher levels of occupancy relative to the past. The Westin has a strong brand following.

But not everybody wants to stay at the Westin. There isn’t much localism. Or uniqueness. The property is an upscale corporate environment and will only become more so after the upcoming renovation and “refresh.” And it doesn’t feel much like a home except for a true Westin devotee or the well-seasoned business traveler. And it certainly can’t be considered unusual.

This is what makes the STR market so interesting. While the Westin is super popular, many guests to Mammoth are looking for a completely different experience. Some are strictly price sensitive and are looking for a nightly rate better than Motel 6 and the utility of a full kitchen. The proverbial crashpad. Others want to be close to a favorite place like Roberto’s, or a shuttle stop. Some want to be closer to the ski lifts and will pay a premium. Summer visitation is very popular and is seeing increased revenue generation. And summer isn’t snow-dependent. STR units near the lifts typically aren’t as popular in the summer. But maybe if the rate is low. There are just so many variables.

Because of all the variables, one thing I tell potential buyers of STRs is to satisfy their own needs and desires first. The real bonus and value of an STR property in Mammoth is being able to use the property during the various seasons. For many it is the real justification for owning. So make yourself happy first. That includes size and location. The best rental properties need to be clean, comfortable, and operate efficiently. And durable. But they don’t have to be perfect. They should reflect a little of the owner’s personality and style. Again, some local vibe and uniqueness is what many guests are looking for. And in Mammoth, repeat guests are a worthy goal for STR owners.

One of the variables that is often coveted by both owners and guests is a view. Many Mammoth condos offer incredible and unique (there is that word again) views and settings. But they too can be quite varied. One of the more interesting comments I have received from the rental industry is that an increasing number of winter guests aren’t coming for skiing and snowboarding. They just want to hang out, go for a walk in the snowy cold, build a fire, etc.. Maybe their friends and relatives came for runs on the slopes, but they just want to take-in some winter in the mountains. These types of guests can really appreciate a special view and setting. This “geotourism” demand is growing. People just want to experience being here.

The older Snowcreek units that sit on the riparian areas and have mountain views are really unique to Mammoth. This area can be spectacularly beautiful in winter, summer and the right time of fall. But again, this location should be an owner driven decision. The localism and uniqueness can easily fall into place with a location like this.

Ultimately there is no right or wrong location for a Mammoth STR. Clearly, some are better than others. Beyond views and settings, being close to amenities can make a big difference. But is the key amenity a ski lift or a brewery? Or the right shuttle line? Or VONS? Or with easy access to Mammoth’s awesome trail system? Mammoth has the variety of condos to meet all of those desires. But meeting all of them is impossible.

One thing owners can do to “juice” their revenue is make their properties pet friendly. It is part of the Westin Monache’s success. It is dog friendly. Spend any amount of time there and you will likely see some “trophy” dogs. Guests will pay extra to bring their pets along, and it can be cheaper than leaving them behind. And what dog doesn’t like to play in fresh snow? Security deposits can protect the owners. The key is to make the interior of the property pet friendly and easy to keep clean.

As this modern STR trend matures, specific locations are becoming less important. Owners are taking different positions on the economics. Some want as much revenue as possible. They compete on price and their units get turned over constantly. The dynamic pricing apps, algorithms, and data helps them compete on this level. These units are likely to be booked even when the town is quiet. Other owners are reevaluating and strategizing for quality not quantity. Others are becoming even more strategic. STRs and the online platforms can be incredibly flexible. And CPAs can be quite creative. 

The AirDNA/CBRE report shows us that the STR industry is here to stay and will have an increasingly large market position in resort lodging. We didn’t really need the report to see the proof in the Mammoth pudding, but it is confirmation of the trend we are seeing. The traditional hotel industry is certainly on notice. How all of this will impact future traditional hotel and condo hotel development in Mammoth is yet to be seen. It certainly makes the development pro formas more precarious.

The Ski Area’s consultant Hart Howerton said just a few years ago the community was 1,000 beds short. Maybe some of that shortage is being consumed by new STR units. Or maybe some of the excess demand is now alleviated by the IKON blackouts (or made worse for the following week). But for now Mammoth is along for this new STR ride. And the far-reaching ties between our community and the local real estate market only becomes tighter. 

Happy Presidents Week!

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