Mammoth Vulture Culture.

From the Thanksgiving issue of the Mammoth Real Estate Times. Happy Thanksgiving!

Q: On your blog someone started discussing a “vulture” fund to use in Mammoth. Funny, because that is what some friends and I have been talking about. Obviously, other people are thinking it is a good idea or at least something to consider. What do you think?

A: Look up, and yes the vultures are beginning to circle over Mammoth. They appear to be very high in the sky. Some are flying alone and others are gathering together. Some are hungrier than others and some are impatient. And most are in front of their laptops. And some read (and believe) the silly stuff real estate agents write.

More than a year ago I was approached for the first time in this decade to form a “vulture fund” to invest in properties here in Mammoth. The market had just begun to soften and some folks were already thinking along these lines. Good idea, proper vision, and maybe premature. So I’ve had some time to think about the prospects.

First, let’s define what a vulture fund is or might be. Without a history lesson or getting overly complicated, a fund may be a group of vultures pooling their resources to acquire distressed properties. The “resources” could be anything from access to cash, borrowing capacity (credit), opportunity insight, creative deal making skills, good risk assessment, or even the ability to move quickly. The “acquire” part would be to get an ownership interest––outright ownership, an option to purchase including a lease option, getting control of title by taking on liabilities, etc. (The “fun” has just changed structure.) When there are highly stressed situations, anything can happen. And don’t forget that the sharks are circling too. But the really big question is: How (di)stressed will Mammoth real estate become?

All of this relies on some assumptions. Vulture thinkers must believe that Mammoth real estate values are going to drop dramatically, and conversely will be going go back up significantly. Essentially they are short-term bears and long-term bulls. Those are two interesting assumptions. What will drive the market down so far and how long will it take? And what will bring the market back so significantly and how long will that take? (Those dynamics are discussed almost ad nauseam in my forums so we’ll leave that to past and future writings.)

Like most investments, timing the lowest lows and the highest highs is left only to luck. But it is capitalizing on the general trend or trends that is important––and finding quality opportunities. Right now many just wannabe Mammoth property owners have a vulture mentality. But I’m sure there are plenty of individuals who are thinking beyond their own personal desires and thinking about it from an investment opportunity viewpoint. And from what I can tell there are people also looking to pool their resources to take advantage of this perceived future trend in the market.

From a pure investment position, the vultures better gain some focus on what the predominant strategy is going to be––or what segment of the market is going to be targeted. Vultures better have goals. Like I often say, Mammoth is full of nooks and crannies (and peaks and valleys.) For instance, I don’t think I would want a portfolio mixed with residential income properties, condo/hotel units, and some single-family homes thrown in too. Perhaps a fund (and goals) for each segment makes more sense to me. Each segment will perform differently in timing, and generating maximum cash flow (to cover expenses or pay interest to cash investors) during the holding period will be different.

My frequent readers know that the single-family home segment of the market is my favorite. Scarcity in this market segment and continued demand makes it, quite possibly, the least opportunistic segment. Maybe. But for the individual vulture looking for a permanent Mammoth property, a 10-30% decrease in value on a quality property could be an excellent opportunity. On the other hand, even though the values might not drop to what appears to be “vulture” status, the potential upswing could be greater than any other segment.

There might even become opportunities for “flipping vultures.” Many Mammoth real estate buyers like to buy turnkey properties. The opportunity may appear to purchase a property in dated or really bad shape for a great price. Just bringing these properties back to a good and marketable condition could generate a handsome profit. But I haven’t seen anything like that yet.

For a true vulture fund––a pooled group of investors with a clear focus––the condo hotel inventory might provide an opportunity. Values in certain projects are dropping. Meanwhile, owners are successfully skirting the on-site “front desk” rental agencies (and their large fees) and renting through by-owner Internet based websites. A pooling of resources could include an at-home mom who could field calls from potential nightly renters, just like many owners are currently doing. Again if values drop, and good cash flow can be generated, and the value trend can reverse, then the vultures may win. Or maybe this scenario plays out in the older condominium market.

There are many potential scenarios based on where this market goes. It may or may not end up being vulture territory. Or there may be vulture territory in one segment and not the other. In the meantime, set out your goals, get your LLC’s formed, watch the market (preferably between ski days), and patiently wait for opportunity. And guaranteed you’ll be competing against other vultures. Meanwhile, I’ll stay entertained by the crows outside my office window peering over the dumpsters. They make very good teachers.

11 thoughts on “Mammoth Vulture Culture.”

  1. The vulture is you.
    Typical agent trying to create some fear and urgency in the market. Playing a psychological game on the so called vultures. Trying to convince them not to get too greedy or miss the boat!
    Ha.
    When the vultures have negative equity in their mcmansions down south, the only vultures will be you and the other RE agents in Mammoth searching for your next deal.
    Get ready for 30% reduction in Mammoth RE, or for that matter, all of California.
    Do you know how many property owners in Mammoth are either in the RE Industry, Mtg biz, Title/Escrow biz, Construction, Pool contractors etc?
    All of their incomes will have or already have SUBSTANTIAL REDUCTIONS.
    Better leave your vultureous circling for your next deal to a minimum, cause your wings are gonna get real tired.

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  2. My English comprehension couldn’t find any fear or urgency in the article. I agree the vultures may be circling for a while. This is because the prices will be far stickier in Mammoth than Socal.
    The buyers in Socal used their own homes as the speculative property. The Mammoth investors are financially a level above, as these are 2nd/3rd properties. They have the $ to hang on longer. How much longer is the big question. Undoubtedly the prices will fall and maybe 30% or more from the peak but I think it will be slower than we expect, or want.
    The properties built in the last 5 years were more likely to have been purchased by new money looking for fast appreciation and these will likely be the first to suffer.
    Mammoth is a limited supply market and will always be desirable to Socal where there is an awful lot of money at the top end.

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  3. I am a different anonymous, Don’t look for 30%, look for atleast 50%. You are a ski resort…there are a lot of them on the west coast. There are no professional jobs there, the most expensive place should be $150k, I wonder how $4/gallon gas will effect the demand for weekend travel there. For those of you that live in Mammoth. This is the best your life is going to get, it is all down hill from here

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  4. digby,
    you have been spun by a Real Estate Agent.
    He spun you around enough for you to actually think the way he does.
    Heres one for you. RE Agents do care if homes go up or down, its always the time to buy from their perspective.
    If a RE Agent tells you to wait to buy, keep that agent forever.

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  5. Mammoth is the ultimate con game for real estate where those with poor math skills and inability to learn from the past are destined to take a bath in red ink. It is a great mountain and resort…when you finally arrive there to have fun.

    You can’t be a vulture until the market bottoms, foreclosures are sitting on the market for years, and no normal person has access to cash (borrowed or otherwise). So those that think they are ready to move forward now on that path or in a year are deluded.

    Let’s see…$1000/sq ft for inferior construction, 5+ hour boring drive from LAX, lack of amenities, high gas prices, poor snow conditions, buying real estate in the middle of a caldera…priceless.

    The slopeside condos for sale/resale are a real joke since there are really just tiny and poorly constructed hotel rooms with permanent negative cashflow and high liability. Those providing management services for clueless owners, such as Intrawest will make some money.

    The RE professionals will make money whether the prices go up or down, but the current freeze is not good for them. Forclosures are good for their business, unfortunately the IRS and the new bankruptcy laws have caused this to not be much of an avenue in the Mammoth market.

    The good news for RE agents is that there are always new suckers with money willing to invest in shiney new things and a chance to buy a “lifestyle”, or suckers who believe they are buying an investment when all of the potential gains for the next 10+ years have already been removed by the developers and the RE agents.

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  6. I’ve lusted for a “vacation home” up in Mammoth and as prices skyrocketed I kicked myself from 2003 through 2005 for not taking the plunge. The romantic dreams of “quality time” with my kids, weekend getaways with my wife, and the vision of Thanksgiving and Christmas with future grandkids could have kept Norman Rockwell busy for years. However, the reality of the dream began to unravel over the past couple years as friends and acquaintances that I once envied began to report the dark side of absente ownership (maybe someone else can elaborate on that but it can be very nasty unless you have deep pockets to insulate yourself from the hassles). Anyway, dovetailing with these reality checks about second home ownership was the growth of VRBO. This is going to sound like a commercial but it really is the best of all worlds. You go where you want, when you want and you can leave your toolbox at home. Best of all I can rent a small unit when it’s just me and my wife and crank it up to a monster if the whole entourage is in tow. What is the point of this?? Well I wonder if many others feel the same way and if they do it may very well dampen future demand for second home ownership. Don’t get me wrong, buying a unit and realizing double digit appreciation over the past four or five years must have been a thrill…..but I think that may have been an aberration and one not likely to repeat itself anytime soon (unless the airport gets dialed in). Regardless, I think the market will bottom once prices fall to the point they pencil with a 10% to 15% down payment. Paul…seen any of those yet?

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  7. Anonymous(please can’t everyone just pick a fake name so not everyone is anonymous) no one is spinning me, I am telling it the way I see it.
    Prices will come down, unfortunately just not as fast or as much as Socal. The people I know who actually own in Mammoth have owned for years or have so much money they buy real estate to just have somewhere to put it.

    To the different anonymous (see whine above) saying there are no professional jobs misses the point. Mammoth prices are they way they are because the people who own, don’t live there! Look at Bridgeport to see what prices would be like if there were only locals buying.

    I agree with the previous anonymous (again see complaint regarding commenters who can’t make up some lame name so I don’t have to … blah blah…) regarding vacation home hassles. I have investment properties (not mammoth) and use the income to rent on vacation. Same as boats, RV etc. If I owned a vacation home I would always want to fix it when I was there and feel guilty if I wasn’t using the home. I always drool over having a Mammoth ski home or home on the lake at Big Bear but there is nothing like packing up, heading home and letting someone else clean it up! The property tax or a busted water heater would cost more than I paid for the weekend. I don’t like being tied to the one place.

    PS. Great blog and comments especially compared to some other Mammoth realtor blogger who is still drinking the Kool Aid.

    PSS since I am on my soapbox, can I complain about the Mammoth 5 star/Airport vision. Mammoth lives on the(us?)Socal Schmucks driving up to ski or fish. Pricing us out by pretending to be a 5 star resort to jetsetters is going to kill you. If I didn’t have kids I would fly to Utah, it would be quicker and cheaper. Since I have kids I don’t go as much due to 5 star prices (for 3 star amenities). Do you think the tourists are going to fly over aspen, vail, beaver, whistler or tahoe to pay to ski Mammoth … wake up. Mammoth is my favorite ski mountain, I just wish I could justify the costs these days. I would love to go more that once a year.

    PSSS looking like another mild winter:(

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  8. I can’t believe the total lack of the most basic math skills of people considering the purchase of properties in Mammoth. There is no way they pencil out as an investment even at 50% discounts.

    If you have cash to burn, want a place all to yourself and don’t care about appreciation then anytime is a good time to buy.

    If you think you can make money on real estate in Mammoth or can justify the purchase of a property, then you need to take some basic math classes in finance.

    The only people who can potentially make money are: Intrawest, Starwood, Westin and those companies providing reservation and rental/repair services. Everyone else is set to lose on the deal.

    From a rent vs own perspective you would have to live in your condo unit for half the year to justify the purchase. When you take a look at how small and shody the condos are, you would never want to do it.

    I believe that the Intrawests and others are brilliant business people with amazing marketing and sales skills with the uncanny ability to take advantage of the average working stiff trying to get ahead by buying real estate.

    There is no real shortage of property in Mammoth, only the creation of artificial and ficticious shortages caused by promoters and RE professionals trying to push up their profit margins. Looking at the village you can see that localized increased density is possible but not utilized in most of Mammoth.

    As long as promoters can get the small guy to buy into the classic pitches of limited supply, life style, legacy for your kids, your a big shot, and you can take advantage of your fellow man in a couple of years, they will be able to tap an endless supply of essentially free money and the ability to transfer liabilities while the take away all of the potential profits for 10 years of more.

    I’m amazed at the stupid people who have signed up for subprime mortgages, 2nds and essentially destroyed their lives for a fictious opportunity to become a real estate tycon. If you assume no appreciation (you always should in a real estate purchase), take a look at worst case dollars out for EVERYTHING, any idiot would realize that buying real estate in Mammoth is only appropriate for the really wealthy or rich.

    Unfortunately, many see the need to emulate the rich by making inappropriate investments based on greed, stupidity, and the hype created by real estate agents and the project promoters.

    Wake up and do some basic math. Go to Mammoth to enjoy yourself, not to make a fortune for yourself.

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  9. Digler,
    What you should be doing is projecting the price that properties will end up at. It is not a secret that markets that are for second homes are the most exposed to price drop in a bubble bursting environment. What is your point? What are you defending? This is going to be one of the worst housing crashes since the depression, nationally…That is according to Goldman Sachs…Places like Mammoth are going to be hit so hard that by the time there is a recovery, the current places will be out dated. Very simply, Mammoth is fucked. And anyone who owns there is going to lose big. This is not debatable at this point. Watch CNBC for a day. The rest of California is going to crash hard. California is the most exposed in the entire country. Yet people are going to protect their ski resort house well kept? So what are you defending? Saying prices will drop 30% isn’t really going out on a limb. Try 70%. It has happened before. It is only a time to go short real estate in Mammoth. Buying would be a terrible decision at this point. There are a lot of places much nicer that are going to get hit bad. And yes, prices will come down hard and fast. This time next year Mammoth will be down 40%. Just like every other ski town in America. Get rid of your disconnect. It is annoying to listen to an adult that doesn’t understand the supply and demand curve, or read financial news. “Mammoth prices are they way they are because the people who own, don’t live there”, Digler, what are you talking about? finance 101, The entire housing bubble was caused by the fed lowering interest rates to allow easy access to money..If you don’t know that by now, go back to sleep.

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  10. “The entire housing bubble was caused by the fed lowering interest rates to allow easy access to money”

    I’ve posted numerous times anonymously (I’m too lazy to register) so to reduce confusion….I hereby declare myself WILBUR.

    Anyway, regarding the quote above, I’m not so sure it’s that simple. Although I agree the historically low interest rates set the stage, it was a feeding frenzy between lenders, Wall Street and undisciplined borrowers that caused the major damage. Once double digit house appreciation became commonplace (and expected), all fear was removed from the market. Rising home prices more than compensated for sloppy lending practices which were soon called “exotic” loans but more accurately called “liar loans” by others. You know what I’m talking about…the stated income and no documentation loans. Lenders (such as Countrywide & New Century) made huge money generating and bundling these loans and selling them to Wall Street. Wall Street (such as UBS Securities and Bear Stearns) made huge money slicing and dicing these packaged portfolios and selling them to various entities (banks and bond funds). John Q. Public was rolling in it as well….home equity lines of credit and speculative flips allowed everyone associated with the real estate industry to be “Pimp Daddy” for a day. The result….well think of three toddlers working themselves into frenzy while the babysitter (federal government??) is in the other room breaking up with her boyfriend (Iraq??).

    So, while low interest rates did set the stage….they were simply a good thing that got taken advantage of to gigantic proportions by people, industries and institutions that should have known better. I guess its another case of learning the age old lesson that just because I can do something…doesn’t mean I should.

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  11. Wilbur,
    you are correct. Yes there were many involved. (as bubbles often are) But this was started with the fed lowering rates to 1%. Non of this would of occurred if the fed didn’t do so. Was the fed wrong to do this? Well, the economy was in real bad shape, and yes, they borrowed from the future to fix the present, and now that fix is over. Now it will be worse. Most of this was unstoppable. The states don’t have much still going for it. It is not the fault of the states, it is the fault of the reality of cyclical existence. So the only thing one could do now is live accordingly. Some may complain about the cost of the war. But that was jus a money grab by defense corporations before there was not any money leaft, as there will be soon. The future? It will be better than the depression, but worse than the 70’s economically. It has been heading that way slowly, now it will pick up its pace. So if you are a re estate agent..just for example, and no ill will, there is nothing wrong with how someone makes a living. But hedge your bets. ie, try to generate cash in other employment too. And for everyone else. Hedge your bets in the same way. Unless you are a school teacher or medical, you will be the last to go. Don’t get angry or point the finger (there is no time to do so), this severe downgrade in living standards was going to happen anyway. Think Japan, but obviously in similar and different ways.

    Reply

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