Mammoth Real Estate Q&A — In a Galaxy FAR FAR Away….

This Real Estate Q&A appears in this Easter weekend issue of The Sheet. It was written prior to the announcement of the sale of Mammoth Resorts. But it all still applies.

Q: The whole Floor Area Ratio (FAR) controversy seems to be a combination of public planning and real estate which are both right up your alley. Home come you haven’t chimed in about it?

A: I certainly have my opinion about it. I think Dave Harvey (who replaced me on the Planning Commission in 1998) nailed it when he said that the Town already has all of the planning tools they need. But there is a small faction who thinks this is a really important and needed addition especially as part of the Main St. Revitalization. And over the years, whatever Rusty wants Rusty gets.

In my opinion the affected commercial property owners and business people have got to be insane to support a minimum FAR like this faction wants. National companies like The Charthouse, McDonalds, Ralph Lauren/Polo, Coach, Van Heusen, etc. have let us know that the cost of doing business in our commercial core is already too high.

And I also believe there is truth to Dearing English’s proposition that it is an attempt by big money to push out the smaller commercial property owners.

So why is there a push to add this FAR in to the commercial zoning code? Rusty appears to have increasing interest in the Main St. Revitalization. It goes beyond Hart Howerton’s planning concepts. It goes beyond his past idea of running a gondola down Main St.. And it goes beyond the drive to attract the tech industry into the center of it.

At the meeting a couple of weeks ago he said that the “capital markets” are watching what we are doing here in Mammoth. Those markets are the people who loan (and can borrow) large amounts of money. Why should they care about tightening the zoning regulations in our downtown area that desperately needs revitalization? Or is it just a case of a hammer seeing nails? But I do have some idea.

The people who are, and/or in the future may become heavily invested in Mammoth Resorts have a problem. Lenders and investors have to be part futurists. They have to be thinking a decade or two ahead. And the future is changing quickly because of generational demographics. Time is marching on. Baby Boomers are still quite influential but are increasingly likely to be making plans about assisted living homes rather than ski homes.

The futurists are looking intently at the massive (and now largest) Millennial generation and the shifts that are happening because of their very different set of preferences. The U.S. Census Bureau and the Pew Research Center have identified some of these shifting trends, and these shifts are and will impact Mammoth in some interesting ways.

These shifting trends may very well be making the Main St. Revitalization a far more important (and profitable) redevelopment plan than the proposed changes at the Main Lodge property. It may be the superior location for major capital investment in the future. The Main Lodge redevelopment has Boomer written all over it. And that was last decade’s demand. The development profitability potential of condo hotel units and other mixed uses is waning. On the other hand, Main St. has Millennial written all over it. And they are the future.

So what are these specific shifts? First, Millennials favor urban living. They prefer foot-traffic urban shopping and entertainment and dining districts with high densities of venues, cafes, brew-pubs, etc. that are safe and close to mass transit. (The Village in Mammoth could be this but there really isn’t sufficient critical mass, and I’ve been told it “lacks authenticity.”) Apparently these urban districts are expanding in small cities and college towns all over the country. The Main St. Revitalization project is an ideal opportunity.

Millennials are apparently known for seeking out a variety of experiences (meaning they won’t be at Slocums or Nevados every afternoon for happy hour). And pricing appears to be a serious consideration too. And they want it convenient. Long commutes and suburban style shopping malls are out. And they’ll be shopping online anyway. Most Millennials are also bound to work significant hours so they value their time. So they don’t want to waste their time.

There are other shifts like ride-sharing and less desire and demand to own automobiles. Mammoth already has excellent public transportation so the backbone already exists. And after this winter many local residents realize that owning a car can be a big hassle. These factors alone fuel the Main St. Plan.

Real estate demand is destined to change with this Millennial generation. It is forefront in many of my industry’s discussions. Home ownership rates are falling across the nation. High prices and overall economics make it very difficult for many to own. But with Millennials it might be choice more than necessity. And need for mobility is a definite reason for Millennials not to purchase. And they are forming families later in life. As an aside, the real estate industry does question who will purchase the large Boomer homes that they have significant amounts of their wealth tied-up in.

My experience in Mammoth is that many Millennials want a nice home. Many are “done” with landlords and want some stability in their personal housing. Especially if they are looking at raising a family. Others are resigned to renting, but want something appealing.

One of the purported “shifts” is that Millennials tend to be less materialistic. It is also suggested that wealth accumulation may not be a major pursuit either, so large homes and toy hoards may be less desirable (we’ll see). Ultimately, it appears that their expectations are going to be different.

All of this may be reflected in the low end of the condo and residential market here in Mammoth — it has experienced strong demand in the past 18 months. Every developer needs to take a careful look at what is going to be in demand as this generation matures. The rules have changed. And I wouldn’t rule out apartments.

So the Main St. Revitalization and redevelopment is a prime opportunity. And lots of young successful techies could certainly help create critical mass, even if they aren’t here permanently.  Some see the Plan as a “scrape and replace” project. That might be the mindset of the capital markets folks, but I don’t see it. I see thousands of baby steps. It is an economic necessity and it will preserve the authenticity of the area.

While many of the existing buildings are not ideal, they can suffice. And loosening some of the zoning codes on existing properties can make it all work. And getting creative. But if the new developments want some FAR restrictions then so be it. But it will discourage new development. And that doesn’t make sense. The key is that the Main St. Revitalization plan is viable and is in sync with the economic and social environment. And the timing is right as the Millennial generation moves towards their “spending years.”

And yes, the real money (Rusty’s “capital markets”) is watching Mammoth. And more importantly they also know what isn’t viable here in Mammoth Lakes — condo hotels and traditional hotels. It is a quagmire. Intrawest led the charge with condo hotel development. It was a byproduct of the challenge to finance traditional (one owner) hotels in mountain resort communities where occupancy rates rarely rise above 55-60%.

The global “search for yield” (due to zero-interest-rate-policy) has increased the value of condo hotel properties here in Mammoth. But the lack of quality (conventional) financing to the end-owner has also limited the growth of appreciation. If it was economically viable to develop a condo hotel property (or timeshare) it would be happening. But values have to rise significantly before that happens. It may never happen. And the start-to-end process here in Mammoth is lengthy — at least a year of planning and 2-3 years of construction.

And then how long to sell it out? And I question whether the old pre-selling scheme would work in the next cycle. All of that increases the cost and risk. The business is basically stuck in the mud. And if better investments opportunities (or just some decent interest rates) come through the pipeline then the condo hotel units may lose some of their luster (and value). Or if tourism demand drops. And lest we forget, the Village was built and sold at apex of the Baby Boomer’s peak spending cycle.

Mammoth Resorts makes millions in the lodging business. Under the old Intrawest model they make those millions renting units they don’t service debt on, or have any historic acquisition expenses (the individual condo owners do). They don’t even pay the utilities or the property taxes either. It is a great deal. I’m sure they would love to have more rooms.

So the alternative is to risk developing a traditional type hotel facility. With it comes debt and debt service and big tax and utility bills. It is risky for the lender and the owner/operator. A combination of lower interest rates and higher occupancies could make it work. And you better have great management.

So developing new hospitality “beds” in Mammoth is a dicey proposition at this point in time. It will take strong hands. Investing in the revitalization of Main St. is far less risky. There is already economic synergy and cash flow. There is new and growing demand. It can be “done at the margins.” And many of the properties have low tax basis.

Pushing for a high minimum FAR only makes sense for the very long term. And we have no idea what the demand and tastes of those future generations will be. It would insure that new developments are more urbanized and with greater density. It would also make new development prohibitively expensive. Maybe we should just let the Millennials decide that 20 years from now.

Ultimately, the only way to “solve” the hodgepodge of commercial development in downtown Mammoth in anybody’s lifetime is to get on with a creative revitalization. The formula has been successfully executed in communities across the country. And we have demographics on our side. We need the support of the Town to help make it work. And maybe this is where some of the TBID dollars need to go.

And lastly, as the Town fathers ram the minimum FAR through, I would advise commercial property owners to be sure they fall into one the “exemption” categories. It may cost you a few bucks, but that has become the American way.

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