Mammoth Real Estate Q&A — Never Avoid The Not-So-Obvious

This Mammoth Real Estate Q&A appears in the Thanksgiving weekend 2023 issue of The Sheet.

Q: You’ve covered many facets of the local real estate market in the past year and we find all of it quite enlightening. But we think there might be even more going on, some good and some potentially bad. So for us laymen, what are you seeing right now that might not be so obvious in the Mammoth real estate market?

A: I chuckle when I see the phrase “We shall never forget.” But it really has become human nature to forget things, even really important, impactful and historically significant things. There are examples all around us. Locally, some of the not-so-obvious market conditions are recurring themes but they are evolving in increasingly relevant ways. Let’s take a look.  

First is the winter of 2023 and the direct impact on real estate. For those who missed it, it was BIG, and significantly snowier than the historic “big” winters of the last 50 years. The property damage and overall cost to property owners was unparalleled. Most property (condo) owners are still incrementally paying for the cost of last winter. A wide variety of property damage has been repaired with a significant amount still in process, or delayed for different reasons. There will be ongoing costs directly attributable to the winter of 2023. And many insurance claims are still unpaid, and the escalations in policy costs are unknown (although technically we were in a declared state of emergency).  

The winter of 2023 was a massive stress test for Mammoth. This included the structures and systems in town, and also included emotional and financial stress. But what isn’t so obvious is that the community as a whole survived, survived quite well, and survived in some interesting and important ways. Now that we have some distance from the winter we are gaining some perspective. 

One curious aspect, from my real estate position, has been the anticipated exodus of people (and owners of real estate) from town. Some newly motivated property owners who didn’t suffer significant amounts of damage bailed out of the market as soon as the snow melted. Others had to make repairs before marketing and moving. The majority of the first 2023 “snow migrants” have moved on or have made new plans to do so. 

All of this basically created an inordinate amount of new inventory. But this new inventory has been absorbed in the market. I previously described this as the “exit/excitement” factor in the local market. The inventory numbers themselves show this absorption. It has all happened in roughly a six-month period. But what needs to be understood is that there were just as many buyers who weren’t afraid of the financial or emotional burden of an overwhelming winter as there were sellers who were. The one thing we don’t know is if there had been more sellers, would there have just as many buyers? Many buyers are still frustrated by the lack of inventory. The very active market for vacant single-family lots is telling—many think they can create their own Mammoth dream home because they certainly can’t find it in the market.

Ultimately, Mammoth was ready, willing and able to accommodate the summer visitors (who ended up being visibly absent), and is ready to accommodate this winter’s visitors. It has also recovered from much of the physical damage caused in the past 12 months, and the property owners have absorbed the financial hit of the winter of 2023. This is significantly positive for the Mammoth community and the local real estate market. So far, Mammoth has survived the extreme stress test well.      

Another recurring and evolving theme is the Limelight hotel construction. It remains a profound, and maybe increasingly profound development in Mammoth. And in many not-so-obvious ways. Yes, the towering cranes are psychologically impressive to many, as is the growing mass of the hillside structure. But it is nothing compared to what the finished product will bring to the community, and in some unexpected ways. First, it is bound to set a new standard for hospitality because the bulk of the property will be a “true” hotel. This new standard will be similar to what the Western Monache brought some 16 years ago. It will set a new standard by which every other hospitality experience in Mammoth will be measured. And raising the bar in Mammoth is a good, and much needed thing.

Once operating, the true “Aspennification” of Mammoth will begin. For better or for worse. But this development could actually break the ice for other future, quality hotel development. Mammoth, like many other mountain resort communities, is plagued by occupancy rates that aren’t favorable to hotel financing. We learned this from Intrawest back in 1996, and hence the need to develop condo hotel properties.  We have these beautiful, Town approved redevelopment hotel projects at the Sierra Center Mall (the Mammoth Hotel) and Berner St. (the Mammoth Lakes Hotel—such original names!). But these projects are stalled pending financing/lending. The success of the Limelight could help break this lending quagmire.

And again, what isn’t so obvious is that this lack of financing for these projects is exactly why  Mammoth desperately needs privately owned condominium STRs—we simply don’t have enough bed base without more hotel accommodations. The Ski Area’s consultants have stated that we are at least 1,000 beds short. And this bed base also generates the bulk of the municipal revenue that pays for things like snow removal, law enforcement, and whole host of other services. Most people don’t make the connection between the lack of hotel financing and the demand for condo STRs in Mammoth (did Mammoth Lakes Tourism create this demand or IKON?). This financing predicament isn’t obvious to the average person, but it creates some of the unique challenges that are controversial in our community.

Again, the success of the Limelight could certainly help break this lending constraint. Pre-Covid (2019) the Studio units at the Westin Monache were hitting occupancy rates of approximately 300 nights per year (80+%). That was impressive. These numbers show signs of returning. That kind of occupancy is what the lenders are looking for.        

Another not-so-obvious market condition is a new level of affluence in the community. All of it is rather subtle. It is consistent with what has happened in many other mountain resort communities in the past few years. But unless you are constantly looking at the ongoing real estate transactions, the new construction, the remodeling of high-end properties, etc., it might not be so obvious. This new level of affluence throughout the whole real estate market should give it stability, even in rockier economic times. It ties back to why the local property owners have been able to weather the financial stress test of last winter.     

As credit tightens and interest rates rise or stay high, the local real estate market will be about the strength of the property owners in the region. This new affluence effect will play it’s role. The owners today are far less leveraged than in 2007. And those who even have mortgages, the majority have ridiculously low interest rates. And many also have very high loan-to-value ratios (plenty of equity). Mammoth is in a very different territory today.

A confusing and not-so-obvious topic that is grossly misunderstood is the STR market. It is the current punching bag on many fronts, almost hysterically (or pathetically). While it is accused of being some sort of fad like in so many other real estate markets and communities, it has a deep and necessary history in Mammoth. To treat it with disrespect is shameful and ignorant. The STR industry drives a significant number of jobs in the region including many government jobs (I remember 30 years ago when the County was struggling to simply fund the basic paramedic program, how things have changed).

What isn’t so obvious is that most Mammoth STR owners are in their position not necessarily for making money but to help pay for their addiction to making turns on the slopes. It has been this way for decades. Also not so obvious, there are valuable IRS tax strategies for serious high-wage earners (not speculators). This continues to drive the market. This, combined with the new affluence, has resulted in the guests who come here having the best selection of quality accommodations that Mammoth has ever offered. And the nightly rental rates are up there too. This has subsequently produced record amounts of tax revenue for the Town. This is the simple economics of STR in Mammoth. All of this isn’t obvious for the average person listening to media reports about wild and wanton (and often illegally operated) STR properties in places like New York City or Phoenix.

The recent affluence and an increasingly polished STR industry has created a flow of capital like Mammoth has probably never seen before. But the spigot of easy dollars is now drying up. And now investors are seeing a Town environment that has introduced “jurisdictional risk” into the equation that we haven’t experienced or had to evaluate in the past. The market hates uncertainty. All of this should make it obvious that the flow of capital will slow. Prepare accordingly. How it ultimately impacts the local economy will play out in the future years. Ten years from now we may look back and be really thankful we have the Limelight and the thousands of quality STR condos in the inventory.

In the end, whether it is obvious or not, Mammoth has plenty to be thankful for. We should be diligent in keeping it this way.

Happy Thanksgiving!    

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