Broker’s Report, June 17, 2019

Broker’s Report, June 17, 2019 — As reported in my bi-weekly newsletters of the past few months, Mammoth’s real estate market has experienced consistent closings averaging slightly over one closing per day. The closings have predominantly been condominiums under the $500,000 price point but have also included condos and homes in the ~$1M+ range. The inventory of condos and homes remains slightly higher than last year but with no real significant increase. Late spring and early summer are traditionally the period when Mammoth’s real estate inventory builds and historically peaks around Labor Day weekend. 

The overall inventory has yet to build significantly because there has been a solid level of absorption. New, quality listings are selling rather quickly. The most significant activity has been in the later phases of Snowcreek; the Fairway Homes (Phase 5) and The Lodges (Phase 6). These sales are indicating a rise in values and significantly fewer days-on-market. The ~$700,000 single-family home market has also been quite active. This segment of the market was very flat in the second half of 2018 but this spring has been quite different. There is a clear lack of inventory under this price point. The bottom of the single-family market is settling in the mid-$500,000 range. 

One notable aspect of the current real estate market is the recent sales of properties that in the past have been more difficult to sell. Some include homes in certain locations and subdivisions, properties that have long histories of DOM (days on market), and properties with significant incurable defects. Only time will tell how this works out for the new owners.

Mammoth is finally experiencing some warm weather. It was a long, cold, and windy winter. Most local residents heated their homes for over eight months. The Ski Area will stay open until sometime in August. The high altitude snowpack will curtail camping and backpacking until later in the summer. With the warm weather comes new flooding. But the Sierra will be green this summer and the wildflowers should be incredible. The lakes and streams will be full if not overflowing. Just as snow brings the winter visitors in droves, the winter moisture makes the Sierra very attractive for summer visitors too.   

One thing has become quite clear in 2019; the new IKON Pass offering is a proverbial game changer in Mammoth Lakes. And a banner snow year hasn’t hurt. I would expect Alterra’s sale of the IKON Pass to double in the second season. And the conglomerate’s revenue should soar with it. It may come down to skiing at Mammoth Mountain without an IKON Pass may be a source of embarrassment. The proposition is that obvious. The trickle down to the community of Mammoth Lakes is increased tourism including more non-weekend winter business (a goal of the community for decades), more short term rental (STR) demand and revenue generation for local real estate, more traffic to restaurant and retail enterprises, and more bed tax (TOT) for local government. The statistics are proving it out. The IKON Pass is a core component to the success of an eventual Alterra IPO.

Meanwhile, the YotelPad developers will have their first Selection Day this coming week. This is for the first round of potential purchasers who all have $10,000 deposits in escrow to have the right to make primary selections of specific units. This is a modern, subdued version of the old Intrawest sales events held in southern California with great hype and fanfare. Times have changed. At some point in the near future, we shall see how many units are actually spoken for. That will be interesting.

The YotelPad pricing is in the “affordable” range. Seventy-five percent of the units are priced under $450,000. The larger townhome units (called “domos”) are priced around $1.5M. The developer plans for site preparation later this year including tree clearing, elimination of the old Dempsey Construction building that currently houses the sales office, and some utility work. Next summer they plan to construct the foundation/understructure parking. The assembling of the structure will occur the following summer. The structure will be built by “box construction” technique. The “boxes” will be assembled in a plant in Idaho and shipped to Mammoth as complete packages including most of the interior improvements. The main developer, who has built all of the condo-hotel units in Mammoth already, is adamant not to be actively involved in construction during Mammoth’s winter season. They learned that lesson.  

There is sales activity for the other major vacant parcels in the Village. There is a “secret” buyer who has closed on the existing paid parking lot piece where the “W” was originally planned some 12 years ago and they have the old Berner industrial parcel in escrow too. They are rumored to be a “five-star” hotel company. The Aspen Ski Company has the parcel next door to the Westin in escrow and it appears they want to build a Limelight hotel on that site. There are Limelight hotels in Aspen and Sun Valley. The activity on these major Village development parcels is encouraging, but we’ve been here before. At least these new owners are not paying exorbitant amounts for the land which increases the likelihood that development may actually occur. 

The Westin Monache is sorting through a major assessment/refurbishment program. Marriott International is requesting the upgrading to maintain the brand. The Monache units are now 12 years old. Most major hotel refurbishments programs are on a 7-8 year cycle. So the Monache is long overdue. The assessment for Studio units is running around $30,000. The 1-bedroom units are running $38-43,000 depending on actual square footage. The 2-bedroom assessments are right around $60,000. There are existing rental reserves on many of the units. Many are in the $10,000 range. There is financing being offered that can be paid through future revenue. The Westin is also reducing their rental management fees by 5% for the next 3-5 years. The refurbishment work is scheduled to begin in the fall. Alterra believes it is imperative to have a true five-star facility in Mammoth to host all of their new IKON pass holders and out-of-state visitors who are demanding of such a facility. 

Within the Mammoth Lakes community, there is a growing debate about specific allocations of government dollars, specifically how much is being allocated for marketing and how much is being directed at workforce housing. The housing crisis in Mammoth only gets worse. Many local employers reported shortages of workers this past winter and many reported employees moving out-of-town this spring because of difficulties due to the prolonged winter. The simple question is; Why are we spending millions to attract new visitors when we don’t have enough employees to service the visitors we have?

The gross marketing expenditures for the Town of Mammoth Lakes is approaching $10 million. Meanwhile, the Town has a newly acquired 24-acre parcel in the middle of town that is designated for workforce housing. The current public process to develop this housing is moving too slowly for those that need employees. And while the State of California is strongly promoting and incentivizing housing initiatives, the recent federal corporate tax changes have reduced the tax credits that have ultimately funded the development of affordable housing (Mammoth has several of these projects). The Town may actually need to be more financially involved in the development of these projects. Many resort areas have had to move in this direction. That may include more cash outlays, more borrowing, and more direct spending. And potentially more conservative spending on marketing.       

The Airbnb/VRBO/STR aspects of Mammoth real estate continues to evolve. With great snow conditions and increasing all-season rental demand, owners are reporting very strong revenue numbers. But some observers believe we may be at “peak rental revenue” while others believe there are even better times on the horizon with increased IKON Pass holders and the continuing of visitors with healthy amounts of discretionary income. Two interesting observations; more frequent visitors but non-owners of Mammoth real estate complaining about how “expensive” it has become to stay and that dictates they come in non-peak periods. And many new winter visitors reportedly aren’t skiing or snowboarding, they just “hang-out” and like to watch it snow and sit by a fire and “maybe” they will go outside and take a walk in the snow. 

And the Silicon Valley Distortion of the real estate market continues. Prudent buyers and sellers are now compelled to look beyond the tech world’s noise. Silicon Valley and the tech world believe purchasing real estate is like purchasing the myriad of products offered on Amazon and other e-commerce sites. Empirically, the distortions are on many fronts. I am witnessing a profound increase in newly listed properties that sold in just the last 24 months. These are not “flips” but are more clearly new owners who realize that they purchased properties with “issues” or that truly didn’t meet their needs or desires. The photos on the Internet looked good to them. Or they believed the agent with all those five-star reviews on Zillow. The Internet has simply made it easier for buyers to buy the wrong property. And many believed that producing revenue (with an STR) is easy and automatic, that location or other factors don’t matter….

Zillow and the likes have also spurred a trend towards dual agency. While many states are attempting to outlaw dual agency, and many supervising brokers attempt to curtail dual agency, the occurrences are increasing. And the consumer is blind to it. Would the courts ever allow the same attorney to represent both the plaintiff and the defendant?? I think not.

And finally, after sitting through days of tax appeals hearings the last few months with Mammoth Mountain as appellate, I have seen many years of financial statements for the MMSA enterprise. The recent revenues are impressive. They are up substantially. Combined with the Alterra ownership and affiliation, I expect the long overdue capital improvements (like those at  Eagle Base) on the Ski Area to finally come to fruition. The specialty appraisers involved in the hearings expressed how well run and balanced the enterprise is. Hopefully, it all means Mammoth can take additional steps towards evolving into a world-class resort. 

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