Mammoth Continues To Open Up But Now Fannie Mae Wants Their Say!
Market Summary – March 14 to March 28
The Mammoth Lakes MLS is reporting 18 real estate closings for the period ranging from a low of $128,000 to a high of $3,200,000. Of the 18 closings, 11 were financeable properties and only seven (7) were financed closings. The two highest residential sales, both over $2M, were cash purchases. There were two (2) more vacant residential lot sales. There were two (2) Westin Studio sales. This period last year there were 14 closings, the lock down had just begun. The 10-year Treasury yield stayed relatively flat and closed at 1.66%. In my January 17 newsletter I questioned the new Fannie Mae guidelines for condo hotels that were released in December. Now we are seeing the specifics and enforcement of the new policies. This will impact the Mammoth condominium market. The full discussion is below in the “Other” section.
At the period’s end the condominium inventory is up four (4) to 29. There were 19 new condo listings brought to the market during the period and six (6) have already gone to escrow. The “watchlist condos” are a mixed bag of activity. A 3 bedroom unit at Solstice closed for $900,000 cash or just under $600 psf. A large unit at Mountainback came to the market for $899,000 and sold almost immediately. It has the original 40-year old kitchen. A 3 bedroom at Mammoth Green also came to the market during the period for $899,000. It too has gone to escrow. (Is $899,000 some sort of new magic number?) This period last year there were 94 condos on the market.
Another interesting aspect of the condo market are the concentrations of new listing in specific projects. This could be coincidence or a sign of some underlying issues. Quite frankly, I’m a little surprised there isn’t more of this activity in certain projects. The support of higher prices in the local market should have owners in dubious projects wanting to head for the exits. Maybe they think prices are going still higher.
Single-Family Home Inventory
The inventory of single-family homes is down two (2) to 12. There were three (3) new listings brought to the market in the $1M range that are classic Mammoth “legacy” properties – dated properties with serious obsolescence. They are all on the watchlist. They all need general contractors and a pile of cash. At this point in the market the cash is more likely to be accessible than the general contractor (and just as I’m about to hit the send button on this newsletter, one of them has gone to escrow). The two (2) $2M+ homes that sold during the period closed for $650 psf and $711 psf. This period last year there were 40 homes on the market.
Another interesting sign in the market; there were four (4) residential income properties (apartment buildings) brought to the market during the period. Three of the buildings have the same owner. The fourth is owned by a long-time apartment building owner in Mammoth. Market rents for these units have moved up ~25% in the past 12 months. Between the substantial rent increases and the amount of cash looking for a new home, these sellers must be thinking it is a good time to re-position their money. Rumor is that locations in Utah are the new apartment hot spot. We’ll see what the appetite is for these Mammoth investment properties. A new watchlist sub-category. To have four of these similar properties on the market is quite rare.
The total number of properties in “pending” (under contract) in Mammoth Lakes is up two (2) to 104 at period’s end. The total number of pendings in the aggregate Mammoth MLS (which includes outlying areas) is up nine (9) to 146. This time last year it was 49 and 64 respectively.
Market Updates and News
Mammoth has settled into the spring break period with a little fresh snow and perfectly acceptable spring conditions. Overall coverage could be a little better on the un-groomed runs but nobody is complaining. It will be another drought winter in the books. The Ski Area just announced that it plans to operate through Memorial Day weekend and perhaps beyond. This will go down as another year that Mammoth Mountain Ski Area pulls off a beautiful ski season with minimal snow. It truly is the crown jewel of the Alterra conglomerate.
Mammoth restaurants are progressively opening indoor dining and the spring weather and daylight savings time should help the expansion of outdoor dining. Some operations are taking full advantage of every opportunity while others appear to be selective, operating at what they perceive to be the most opportune time. The visitor crowds have been steady the last two weeks but in no way overwhelming. But spring is this way. And there are no black-out dates on the IKON Pass.
As Mammoth lodging is less restricted – no more 24-hour cooling off between guests and no more limited capacity – the operators are reporting a new problem, a drastic shortage of housekeepers. They are citing various reasons including simple affordability (high rents), others left the country during the early Covid lockdowns and haven’t returned, and others simply left during the most recent lodging freeze to pursue opportunities in other places (maybe they decided to learn to “code”). Regardless, there is now a serious shortage, and the lodging industry is reacting. And it may create a desired result.
Visitors coming for the balance of 2021 are likely to find more minimum-night requirements and higher winter rates charged this summer and fall (long overdue). Many operators seem to like the 24-hour cooling off gap between guest stays (the traditional Mammoth back-to-back rental turnover can be maddening). Apparently there are owners and guests who approve of the 24-hour separation also. So far, some in the industry are anticipating a higher “yield” or profit margins because of this (and I would think a less hectic schedule). Maybe some of them actually read my Q&A that appeared last Thanksgiving highlighting Mammoth and the law of diminishing returns. Higher nightly rental rates look like a possible first step towards alleviating the crushing crowds of last summer. Especially if some dispersed camping guidelines can be implemented. Just as Mammoth real estate is in a price discovery mode, now we are going to see STR in a new price discovery mode.
The Covid pandemic has certainly taken Airbnb for a wild ride. But now the company is reporting that their STR inventory is actually up 2.5% from pre-pandemic levels. Even more impressive is that they saw a record number of bookings in February 2021. They are also reporting that not all markets have faired equally. The “small towns, rural areas and destination resorts” have seen the greatest increase in available listings. These areas have also proven to be “the most resilient” market. It would be interesting to know what the change in TOT certificates were in 2020. This may be asking too much of the Town to provide this information. I’m guessing it was a push – there were just as many properties entering the STR business as there were leaving. From the perspective of the transactions I was involved with, there would be a net loss.
The company Notarize raised another $130 million in funding. The company is pushing RON or remote online notary. The year 2020 certainly helped their cause. The real estate industry is surely supportive of streamlining this painstaking process for both buyers and sellers of real estate. But while other states are adopting RON, there is no legislation introduced in California as of yet.
The March-April edition of Realtor® Magazine has nice little article about how 1031 tax deferred exchanges can often be a boon for communities. They often result in the rejuvenation and revitalization of commercial properties which in-turn create employment. Critical anchor tenants are also the key to the success of smaller tenants and local based businesses. Section 1031 has been part of the tax code since 1921 (that’s 100 years ago). The current administration is proposing to eliminate these like-kind exchanges.
Pretty slow on the Town’s news front, no new word on the Limelight and a potential development agreement, nor the Ice Rink/CRC construction which should commence soon, the Bishop Airport, or work on the long over-due Old Mammoth Road assessment district renovation work.
Westin #401 closed for $712,000. It took awhile but the Westin 2 bedroom / 2 bath units are finally catching up with the market. The unit was listed for $690,000 and was immediately bid-up to the selling price. I sold unit #301 directly below it last summer for $575,000. These units are still subject to the “refresh” assessment of ~$50,000. The renovation work is scheduled to begin this spring.
The residential lot at 33 Hidden Valley Road closed for $128,000. This is a large lot and slightly downsloping. A small condo project is across the street but it is within a reasonable walk to the Village. No real view and not much sun. But maybe a good buy in this market.
Another 1 bedroom in the Village (White Mountain Lodge) closed for $475,000. Prospective buyers were thinking just a couple of months ago that these units would drop in value. There have been five similar closings since then.
The sale of Snowcreek #27 for $380,000 is telling. I actually highlighted this unit as a Favorite because of the floorplan, location and price. It was listed at $339,000 at the time. But it had a full-time tenant which compromises the marketability. They held it off the market, evicted the tenant and then brought it back to the market. Presto! Price discovery.
Favorite New Listing for the Period
People who know me know I am especially keen on properties that are true ski-in ski-out and that have big views. Here is one that checks both boxes. This is a 2 bedroom / 2 bath at Sunstone in the heart of Eagle Base. And the Sunstone project has not been deemed a condo hotel property in the past because there is no front desk. The Fannie Mae criteria may change in the future based on the new guidelines but there may be a window to still get great financing on a Sunstone property. This specific unit has great access to the ski run, the pool and spa area, and the beautiful “hearth room” and deck in the common area. The project is in great shape and has very strong HOA reserves. HOA fees include all utilities.
Listed at $719,000
Courtesy Mammoth Realty Group
Other Real Estate News
A reader sent me a link to a video of a “real estate expert” who was predicting a massive crash in housing prices once all of the delinquencies and forbearances are forced to be satisfied. I watched even though I am familiar with them.
The new Fannie Mae guidelines for “condo hotel” properties are coming home to roost in Mammoth Lakes. The loose guidelines hit the press at the end of the year and I started to question some of the loan officers about them. They saw no problems at the time. On March 3 Fannie Mae released more specific guidelines and we are now beginning to see the effects. Some of these new guidelines simply don’t apply to California because of our real estate laws which prohibit things like restricted use, rental pooling, profit sharing, etc.. But other guidelines are rather ambiguous and give the reviewing underwriters rather broad latitude in rejecting properties (and conforming loans).
The new condo hotel designations and guidelines for lending purposes came about back in 2011 when Fannie Mae realized the high volume of defaulted mortgages in this segment of the market following the crash in 2008. Mammoth could have been ground zero for this. In the 2000-2006 era there were many highly leveraged and poorly qualified loans made in condo projects in Mammoth. And many of these buyers were relying on “promised” rental income from these properties (this is all pre-Airbnb). While Mammoth has true condo hotel properties (like Juniper Springs Lodge and the Westin Monache), many other condo projects were lumped into the designation because of the active STR activity, onsite “front desks”, website representations and more.
Over the past 10 years many local condo projects have reacted in different ways to not fall into the Fannie Mae condo hotel designation. And of course borrowers have had to actually qualify for loans during the same period (the Dodd-Frank regulations). Some of the guidelines have also been gradually relaxed in the past few years. But now it appears Fannie Mae is upping the restrictions to reduce their risk exposure. There is no doubt that a heated real estate market and the popularity of STR ownership have driven this action.
So here we are. Properties that qualified for Fannie Mae backed financing back in December are now redlined. These properties are still financeable but at much stiffer down payments, rates and terms. Prospective buyers look at the new costs versus their anticipated revenue projections and the logic of the purchase disappears. For sellers, cash buyers become far more attractive.
The big uncertainty is in the ambiguity of these new guidelines and how the reviewing underwriters will exercise their scrutiny. They will certainly do a deep Internet search of the specific property and condo project to see if it falls into any of the new criteria. Here in lies the problem. The first characteristic that makes a project ineligible is “primarily transient in nature.” This is pretty obvious for a place like the Westin. But it could certainly describe all of Mammoth and most of the condominium projects. People are coming and going all the time.
Another project characteristic for ineligibility; “professionally managed by a resort management company that also facilities short term rentals.” This is another potential problem here in Mammoth. Hopefully they are already operating as separate legal entities.
Or how about “the property is marketed as a resort or investment opportunity.” Looks like the local agents and brokers are going to be forced to clean up their marketing language. No more advertising “cap rates” on local condos (this was never a good idea). Mentioning anything about rental income should now be off limits (that is unless it truly is recognized as a condo hotel property).
And this; the property is ineligible if it has obtained a resort rating through some hotel ratings-type provider like Airbnb or Expedia. Oops. This characteristic alone casts a very broad net for a scrutinizing underwriter.
And then there are a set of “red flags” that signal the lender “should perform additional due diligence of the project.” One is the “location of the project is in a resort area.” This alone opens the door for a high level of scrutiny on every condominium loan here in Mammoth. Or how about this red flag; “”more than 75% or more of the units are owned as investment and second home occupancy – especially when the loan transaction is not a principal residence transaction.” (Again, sounds like the majority of projects in Mammoth, including all of Snowcreek.)
Okay, the red flags are now dropped all over the field on Mammoth condos. At this point, buyers need to be working with the very best loan officers and especially ones who have great rapport with their underwriters. You’ve been warned.
Thanks for reading! Please stay healthy.
If you know anyone interested in buying or selling real estate in the Mammoth region, please send them my way!