In the East, some feverish selling of condominiums and condhotel units was all the more impressive in light of the poor snow year, which at times was rivaled by the inferior performance of several snowmaking systems. There were also some “flat markets” and discounted prices, especially in the pricey Rockies, but in good ski-to locations, unsold inventory appeared to be down. And several condhotel projects ($80,000 to $100,000 per unit) experienced excellent pre-sales even in Colorado, where pre-sales are not the rule.
Nick Badami, the mogul of Alpine Meadows (California) and Park City (Utah), conducted a “mini” survey and found real estate sales stronger than he had suspected. In 11 counties, comprising most of the continent’s biggest ski resorts, almost a billion dollars of real estate changed hands.
“Everything’s relative,” said Badami. “Appreciation’s no longer going up 25 percent a year. But at realistic prices, it sells.”
“Realistic” at Killington, Vt., was $150,000 to $200,000; at Sunday River, Me., it was condohotel units in the mid-to-high 40’s. Stratton, Vt., presold all its $92,500 investment-oriented condhotel rooms and had to hold a lottery to see who would get to buy seven luxury mountain townhouses at $295,000 to $495,000 per. Steamboat, Colo., had to cut prices around 30 percent—to $160,000-$190,000—then inventory was substantially reduced. There was little or no demand for condos between $200,000 and $300,000 at Keystone, Colo. Luxury units over $400,000 reportedly still sell, but there aren’t many buyers in that strata. Generally, the current standard is around $100-$150 per square foot.
Tax Cloud
Ironically, much of the selling has occurred with the spectre of “unfavorable” tax law proposals hanging like a black cloud, inspiring investment counselors to advise clients to stay away from second-home real estate. The reasons are complex and may relate to skiers buying the “sizzle” (being part of the action of a ski resort) as much as the “steak” (having a mountain condo retreat that, by past standards anyway, is likely to appreciate and also provide some tax write-offs).
Most people buy condominiums on emotion, said Keystone President Jerry Jones, and several resort developers agree, at least in part. “My wife sells real estate strictly on emotion, and she’s the best sales person they’ve got,” said Jones, adding, “If you get into taxes and investments, you’re going to lose the sale. There is a building boom going on here, and I can’t figure out why. Developers say they can sell, but a lot of banks have been hurt.”
Keystone itself is not now building condominiums, although it is selling land to developers, while requiring a two-year wait before building. And like several large resorts, Keystone is exploring possibilities of one or two new hotels.
What Price Survival?
To an impartial observer, some questions beg answers. Are we entering the downside of the growth cycle? What happens at resorts with an expanding bed base, which is fueling on-mountain investment—and maybe even operations—if times get tough? Who would best survive a prolonged recession, a snow or water drought, a tightening of environmental restrictions?
There are no quick answers, but some observations are pertinent. With few exceptions—Killington, where the mountain development exceeds the real estate development, may be one—today’s major base village expansions depend on further on-mountain development if they are to remain viable, used and marketable. In turn, expanding mountain facilities are premised on substantial growth in skier visits. In some cases these “new” skiers must fill sizeable, even historic voids.
“If a ski area putting in a major expansion doesn’t do midweek business, there’s a good chance it’s going to fold,” said Ted Farwell, who after a year as Stratton’s vice president of mountain operations resigned this spring.
“The biggest challenge for ski areas is not in collapsing real estate values, but in people not skiing the area,” Farwell warned.
New England areas have never had strong midweek business. :
In Colorado, “increasing destination business” will be needed to fill all the new beds, according to Jones.
Both Jones and Farwell believe that more skiers will materialize. Jones noted another “blockbuster year” in the Rockies in both snowfall and increased skier visits. And Farwell pointed to the emerging base villages at the big New England resorts that are attracting new skiers.
Yet there are some dangerous pitfalls on the road to orderly, balanced growth.
Farwell said the critical problem for most areas, including Stratton, is a lack of long-term financing for on-mountain development. “Stratton will run in the black this year, but not enough,” he said. “We’ll probably put $2 million into the mountain this summer, but it probably should be at least $5 million. It’s not keeping in balance with real estate development.” Stratton recently received a $30 million, part of a $65 million loan from a Connecticut bank.
Farwell said United States banks and American investors want a return on their money too quickly. You can do that selling real estate, but on-mountain development requires reasonable interest rates for at least seven to 10 years to begin to pay off. “Somehow,” he said, “Europeans understand this. They aren’t so greedy and they understand the U.S. is the stablest place in the world to invest.”
In his new role as head of the financial division of the Group Delta planning and engineering consortium, Farwell said he will work with an investor syndicate out of Zurich, Switzerland, to obtain long-range financing for ski resorts, including Stratton. But this sort of financing may pose another problem: unknown financial sources.
Joe Steiner, who directed a record $23 million worth of real estate sales for Stratton this past year, said a rise in interest rates, not a change in tax laws, would have the most significant impact on selling condominiums. “The banks don’t expect it, but that’s what they said in ’78,” he recalled.
Sugarloaf, on the other hand, presents a version of how growth could be affected by unresolved environmental issues. The area has undergone one of the nation’s biggest ski resort expansion programs during the past five years, four of which have seen condo sales subsidize skiing operations, according to Sugarloaf president Larry Warren. Now, with a new $2.5 million golf course and full-blown summer program (including anti-black-fly efforts), Sugarloaf must face a problem critical to its basic business of skiing: not enough water for expanded snowmaking. The resort wants to flood 100 acres of land, but state permission to do so hinges on whether trout spawning areas will be affected. Said Warren, “If we can’t convince the environmental agencies of the rightness of our program, we have a real serious problem. Our expansion program would require rethinking.”
Economic Impacts
The pitfalls of possible tax law changes so far have been something of a bogeyman. Sales often have slowed, but they haven’t stopped, especially where there is strong demand by users for moderately-priced units. American Ski Federation President Joseph T. Prendergast sees some sort of compromise likely between the three tax proposals floated so far. If a bill is not introduced by this month (May), he said, there’s probably no chance of its passing in the near future.
No one can predict with impunity what condominiums will sell for in two years. Charles Goeldner, director of the NSAA Economic Analysis of North American Ski Areas at the University of Colorado, does not expect anything more than normal business cycles. But in a serious crunch, he said, it would be “out and out real estate operations” which use skiing as an amenity that might not survive.
Steiner of Stratton thinks areas with affluent non-renting condo owners would fare best; those with large, investor-oriented rental pools would do worse. He would be particularly concerned about areas with more than 10 percent of properties up for resale. Usually, he noted such projects are not area-controlled.
Killington’s Bruce Nurse, vice president for real estate, labeled as “dangerous” an area’s merging real estate and skiing operations and, especially, selling land to subsidize operating losses. He would like to see NSAA put more emphasis on real estate education at its conventions.
Timothy Mueller, owner of Okemo, Vt., noted that “not every ski area can be a Killington.” He said new and smaller areas can’t make sufficient profit from skiing alone to justify the risk and intensive capitalization that expansion requires. “To make it a profitable venture, you have to be thinking of higher returns than the national average for skiing operations, which is less than 10 percent,” he said.
Of course, it’s one thing to theorize about various approaches to development; it’s another to raise money and put it on the line. Mueller candidly expressed the frustration of an entrepreneur in his situation with a two-year moratorium on new condominiums at Okemo passed by locals at this year’s town meeting. (See accompanying article, “The Vermonters Are Restless.”) “I think the majority wants to slow down development,” he said. “But you’ve got to make hay while you can. Obviously, if we have 26 percent interest rates in six months, there isn’t going to be any more boom.”
That’s an understandable position. But such risks come with the territory, so to speak. Area operators who opt for the long haul are probably most likely to be selling future “steaks” when the “sizzle” sales people are long gone.
