You Can Check-In Any Time You Like, But Can You Ever Leave?

One of the blogs I frequently visit for quality insights into the hotel and tourism industry is the Hotel Law Blog. The writer, Jim Butler, is a prominent attorney specializing in hotel matters. His blog entries provide a unique view into current hotel trends, legal, financing and business issues, etc.––really cutting edge information about the hotel business.

Recently, Mr. Butler’s posts stopped and I was disappointed that perhaps, like many bloggers, he was no longer interested in this pursuit. But low-and-behold it has become evident he was busy with a court case––representing a plaintiff against Marriott International and Ritz-Carlton. The verdict in the case favored Butler’s client including $10 million in punitive damages against Marriott and Ritz-Carlton.

But here is what stands out from his blog entry announcing his summary of the case, “We have been helping owners, developers and lenders with many hundreds of hotel management agreements over the past 20 years. We have negotiated, re-negotiated, terminated and litigated almost every aspect of them, so the only thing surprising about the latest jury verdict handed down on January 25, 2008 against Marriott International and Ritz-Carlton is that it shows a continuing arrogance and disconnect of operators who choose to ignore their contractual and fiduciary duties.”

Further in the post Butler says, “Owners should be able to trust their operators to honor the letter and spirit of their hotel management agreement––and to fulfill the fiduciary duties that the law imposes on every agent. Operators sometimes seem to confuse the POWER they are entrusted with in running hotels with the RIGHT to do anything they wish. That is a big mistake.”

And further, “The terms of that management agreement have a controlling impact on the value of the hotel for years to come. Why? The hotel management agreement is intertwined with virtually every legal and business aspect of your hotel. It is the keystone affecting the most crucial components of your hotel’s success, including financing, ownership structure, value and profitability, day-to-day operations and guest perception. It is often said that, a management agreement can easily add or subtract 25 percent of the value and often much more! And, a long-term management agreement is difficult to “fix” once it is in place.” For the whole story go to www.HotelLawBlog.com

Well, what can I say? Ever since I was a permanent resident in the Eagle Base Intrawest built properties, and having a front row seat to how things really operate, I’ve had lots of questions. Any of my longer standing readers know I have been expressing those concerns for quite some time. In fact, in April of 2006, I forwarded (at his request) 13 questions about these types of issues to MMSA CEO Rusty Gregory. Those questions centered around the conflict between Mammoth Hospitality (a subsidiary of MMSA) acting as both the “front desk” (or reservation company) and the on-site condominium manager. The delineation between expenses and responsibilities was of great concern and there was nothing spelling it out. All appearances were they were just “winging it”, and not in favor of the homeowners. There were other concerns. I never received a response to those 13 questions. As Rusty Gregory has been quoted in the local paper, “We do a crappy job at hotel management.” That inspires confidence.

Now I have new concerns. When a “brand” or “flag” like Westin or Ritz-Carlton is involved, what value are buyers placing in the name? And what if the brand decides to bail on the project after a few years? (For those who don’t have clarity on this, the “Westin”, “Ritz-Carlton”, or even “Trump” part of these type of offerings is as a licensed operator or name. They have no ownership interest in the property. Their vested interest is rather shallow.) Now with the serious problems of staffing a large, high-level hospitality facility here in Mammoth, and the very low annual and very seasonal occupancy rates, and the overall high costs of doing business here in Mammoth, and a whole bunch of other serious obstacles (especially compared to so many other marketplaces), why would or should they stay? (Simple conjecture on my part, but the subject of Butler’s trial was the Ritz-Carlton Bali, one of the most highly rated and popular hotels in the world. If Ritz-Carlton can’t respect their fiduciary responsibility there, are they really going to care that much about Mammoth?)

And if a significant chunk of the perceived real estate value is in the brand, and the concurrent bundle of marketing, services and training that comes with it, and the brand leaves, how does that impact the value to the individual investor? As Mr. Butler points out, the management agreement can easily add or subtract 25% “and often much more!” to the value. If the Westin leaves, does “The Monache” (named after a tribe of local Indians known as “fly eaters”) inspire you to make a booking or want to own?

Do any buyers of these condo hotel units ever review the management agreements with these brands or even Mammoth Hospitality?? It’s probably in the 750 pages or so of disclosures the buyer receives and signs off on (at least the original buyers). Do they understand the ramifications if the brand decides to leave? And there are probably tons of “outs” in the management agreement. And would Mr. Butler even understand it all? And does the developer care? They’ll be down the road and protected legally. (Think Intrawest.)

One of my other concerns is how this all applies to condo hotels. In Mr. Butler’s case study there was only one owner––long established, unified, and of one-mind. Condo hotel ownership structure is scattered, disinterested for the most part, and un-unified (and even worse you might have a couple of egomaniac Board members).

But if you have lots of money and don’t care, and if being able to tell people at cocktail parties that you own a “such-and-such”, well then be my guest. Oh, and of course, the Airport will solve all of these problems.

12 thoughts on “You Can Check-In Any Time You Like, But Can You Ever Leave?”

  1. mm1968

    Paul, does this mean you will not be on the Ritz Carlton pre-sale buyers list with all the “Destiny” Dallas and Chicago greenfield clients flooding the new airport?

    Even with a big plane airport, I have never understood why Chicago/Dallas will fly past Colorado, past Utah, past Tahoe for Mammaoth? It must be the buttery wind buff that turns on all their trophy ski bunny wives.

    How is it that the “1” hotel is AWOL and Staubach’s Ritz group is buying in at 2005 inflated dirt prices?

    The ills of the “Condo Hotel” model have been beaten down to the level that only a deaf/dumb/blind person could avoid. Add to that the unbelievable business plan for the Ritz Mammoth, in a village that is code blue, and you can only admire the criminal skills of those that can sell the dream.

    I hope I am wrong and the Ritz and Village are at the brink of great success. I wish the best for those that make Mammoth their full time home. As a second homeowner that loved Mammoth 1970s and enjoys the yr2000+ mountain improvements, I win regadless.

    Great article Paul. I hope your blog effort is viewed by mor than a few Mammoth insiders. Your blog is a public service.

    Reply
  2. OK, MTimes has banished Paul for not being PromoPC enough. this blog is just not enough exposure for the effort, value and service provided by Paul.

    I was thinking quality, respectable publication like Mammoth Monthly, but they have closed. Then I said, there is no other game in town except “the Sheet”. The Sheet may be just one step up from a bunch of Mt. Baldy snowboarders (just kidding), but we all love the Sheet, even if we hide it under our matress. I am really concerned that this blog will not susstain the Oster Review.

    On another topic, the Mammoth/Yosemite “airport”. This airport has been Mammoth’s version of Obama’s promise of hope, since Itrawest came to town. The Westin, the Village, the Ritz, the “1 Hotel in hiding” have all been based on the “Destination” resort promise.

    We, many property buyers and developers have been living with the promised airport for nearly a decade. It is time to give this problem child a proper name. Can we all agree to call it the “Promiseport”?

    Negative humor aside, I admire the continued effort to bring some level of increased air service to Mammoth and my wife will be one of the first SoCal ladies to use it.

    Reply
  3. how does the local economy of a resort town do during a recession? This blog will not be around in two years, basically because by then even the guy who shines shoes for the guys who fly their trophy (pros) wives to mammoth will know that housing has crashed and due to over supply realestate for the most part wont be worth shit

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  4. Mountain Resort Towns are the first in, LAST out of most recession cycles unless there is some outstanding element of capital ifusion. Paul’s blog may not be around, but do not underestimate the stamina of Mammoth locals that understand their choice to live in the Eastern Sierra. BTW many Mammoth Locals have second sunshine homes.

    If you have had the opportunity to visit otther Alpine locations in Europe and North America, you will appriciate the unique special nature of remote Mammoth to SoCal and the unique beauty of the Eastern Sierra on a global scale. I do not see the Chicago/Dallas crowd appreciating this for many GOOD reasons, but it makes perfect $/cents, emotional logic to generatrions of SoCal families.

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  5. You can attach what you just said to every ski resort in the United States and Canada, and probably the world. And yes, most people who own property at ski resorts, do own another house somewhere else, but thanks for your by the way, it was very insightful. And as far as unique beauty…I disagree. There are many beautful places in the world, sure Mammoth is scenic, but it wont break the top 1000 beautiful places in the world, though very few in America would. Long story short, sell your property, break even, take a loss, foreclose if you owe anything on it. Real estate in general is tanking all over the U.S now, and will in Europe shortly.

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  6. mm1968,

    BTW, As a 30yr TML visitor and 15yr TML property owner, I do not consider myself a TML local. I am a TML lover, but I have not committed my family and fortune to Mammoth. I have not found a way to raise a family in Mammoth and make the monthly “rent” for the love of the experience.

    I have experenced Aspen, Vail+, Snowbird/Alta, Vermont, Davos Switzerland etc. and Mammoth/Sierra on the border of the Basin Range Province is unique in geology, flora and extreme beauty. The Alps, Utah, Colorado do not compare. IMHO and in the view our sons at a young, unfiltered age.

    I mis-spoke when I said “many” Mammoth Locals have second sunshine homes. Maybe 10% of Mammoth’s most $ successfull own Palm Springs or sunshine homes. SoCal second homeowners are not Mammoth locals by commitment.

    Regarding a “run for life”, evacuate the twin towners approach to property ownership worldwide, this is always true if you have an overleveraged, heavy debt service vs income ratio, but to say get out of Dodge now or be shot in the realeste investment street begs one to suggest that it is time to refill your perscriptions.

    If you bought in late, with an unsustainable debt service,the previous poster may fairly state. your sense of dispare.

    If you bought within your means for a long term hold, primarily personal use and love affair, the best part of TML, beyond the private property bounds of TML will deliver just as much payback as you ever dreamed.

    Conservative ivestment basics vs short term speculation plays always create extreme market perspectives.

    The most important, long lasting aspects of a place like TML are untouched by economic fluctuations.

    Reply
  7. even if you bought within your means and have a wierd love affair, don~t think you are not going down if you stay in your place, ok, if you were one who bought in the 70~s and still have the property, it still makes no sense not to sell it, and take your profits. Because those who bought above their means, which is most, will create a bad supply and demand reality for your love affair place, as the previous writer. As far as evacuating the twin towers, I don~t think that should ever be mentioned in an analogy. A lot of people died, and it shouldn~t be used in a off the cuff remark. But this period there was another bubble, in the nasdaq. It lost 80% of its value and today is still down 60%, and the economist that called that bubble bursting is saying the housing bubble is much bigger. Unless you like 60% haircuts, which no one does, get out. Screw your neighbor(the bs individual with the love afair)

    Reply
  8. Not everyone who owns real estate is a flipper/flopper overleveraged subprime debtor with a 6 month timeline? Just like the stock daytraders who come and go, they only cause short term (yes, that can mean several years in RE) disruption from the fundamentals. People who have longer term (yes, some people were/are actually thinking 30 years out) horizons look at the end game not the bumps on the road.

    So your house tripled in $ and now will halve in $ just like it did in the last boom and bust and will probably do so again in the next ones.

    Everything has a different value to different people at different times. Follow the sheep and you will end up with the sheep.

    Regarding the Ritz/Monache. So if the Ritz becomes a HoJo do people get a refund? Maybe they should go upmarket, St Regis perhaps? Still a small hotel room all the same. Ski boots don’t treat nice hotels well … visit Alyeska!

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  9. To the writer who’s insight is limited to “tanking” real estate and frequntly posts here, a previous writer said “twin TOWNERS” (as in dividing time between 2 towns), not “twin towers”….

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  10. Looking forward, I cannot help but think that the Feds knee jerk rate cuts are only going to postpone a signigicant period of higher interest rates for realestate.

    I also read that the boomer fuel for the second, legacy home has reached its peak or will within two years.

    So, with an almost certain long period of higer interest rates on the horizon and a sharp drop in boomer dream investment, what is the 5-10 yr. outlook for Mammoth property values? What demographic is going to be ivesting in Mammoth at higher, but realistic interest rates?

    Again, if you are a long-term, personal use investor that is not banking on rental income to hold, you are above this question. If you are the Ritz/Staubach Group or Starwood Capitol, or a recent Westin investor, you must have a thoughtfull answer to this question that will enlighten the rest of us.

    I am facinated by the Ritz investment, the “1 Hotel” absence and the next phase for TML.

    In the mean time, I will enjoy everything about Mammoth that has nothing to do with humans.

    Reply
  11. real estate is tanking, you will see large price declines, larger than ever seen in american house declines. And you now will have to watch as you have to take the loss because everyone knows about it now. And a buyer isn’t going to bail out a seller. The only thing you can do is keep lying to yourself if you own. It is the only way to deal with the situation unfortunately at this point

    Reply

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