A Kick In The Mammoth Fannie

This Mammoth Real Estate Q&A appeared in this weekend's The Sheet. They even started it on the front page!!

Q: We’re looking to purchase a condo in Mammoth but we’re hearing different stories about financing problems. We’ve even heard that some new financing regulations are disrupting the way some local condo projects are operating. What gives?

A: The financing of Mammoth condominiums is a completely different ball game from three or four years ago, almost laughingly so. We’re now paying the price for all those people who were allowed to borrow that shouldn’t have been allowed to borrow. And I’m sure nobody in the general public has any sympathy for real estate agents who are struggling to close the financing and purchases on local condos. But the root problem is trickling down and around and is impacting property owners, business owners and a variety of workers in Mammoth Lakes.

The whole problem is clearly tied to our present national economic mess, and it manifests in little ways in our alpine microcosm. Unfortunately, it is one more thing cutting the cash flow of both the private and public sectors in town. The devil in the details this time is FannieMae. Because this secondary mortgage market giant was so well run in the past decade––and is now controlled by the Federal government––the pendulum has swung on the way they scrutinize loans. And they have become especially stubborn about lending on properties that resemble hotels. The true condo hotel properties that proliferated here in Mammoth and all over the world are simply not what they want as collateral for loans. Most of the mortgage brokers and loan officers feel it is an arbitrary redlining, but it is what it is. The bigger problem here in Mammoth is FannieMae applying these condo hotel-like restrictions on many of Mammoth’s regular old condo projects.

First, let’s look at why FannieMae is probably shunning condo hotel properties. It’s all about risk, and at some point in the last two years condo hotels were deemed at the top of the risk heap. I could argue that today most of the risk has been dissipated with the 50-60% reductions from peak values (but how low will they go?). Condo hotel properties were overbuilt and over-hyped worldwide. (Here in Mammoth we may not be overbuilt, but that is another column for another day.) The oversupply pertains to potential owners and potential renters too. And many of these owners were relying on rental demand to pay the mortgage. All of this coincided with the glorious era of speculation and easy money. This segment of the market is also tarnished by some of real estate’s most “enthusiastic” salesmanship including many of the salespeople becoming buyers themselves––much to their chagrin today.

Another portion of the risk consideration has got to be the overall expenses tied to these condo hotel properties. Regular old common area fees (including most utilities) are on the high side especially for newer properties, and then subtract the higher rental management fees and expenses charged to rentals. Any hotel operator will tell you it costs plenty of money to keep up a happy face. Throw in property taxes at high valuations and the return on investment crumbles fast. That is why today’s condo hotel buyer is more rationally purchasing at huge discounts, paying cash and can probably make it work. And certainly those assessing the risk know there are more defaults and other stresses coming.
In the past few months FannieMae’s risk policy now includes many of Mammoth’s old-guard condo projects with active on-site rentals programs. Loans have been rejected at the very end of an escrow because someone in underwriting googled the name of the project and found flashy websites promoting nightly rentals, Expedia-type reviews, etc. The big red flag is “on-site” rentals. FannieMae now equates that to “condo hotel” and the loan is rejected. The downstream effect––cash buyers only in these projects. And guess what, cash buyers want a discount. The irony: the “excellent on-site rental program” that added value for the average condo owner in the past is now slamming his values because of compromised financing. All of this is now being facilitated by the required scrutiny by local appraisers (and re-appraisals), closer review of the Homeowners Association’s documents and HOA certification, etc. (One appraiser recently said his required photo of the condo project’s sign clearly included the words “Rentals” with an arrow pointing directly at the manager’s office.) Oh, and those nosy underwriters continue doing Google searches.

So how long will this last? People are scurrying all over the place. The mortgage industry is trying to work things out with FannieMae. But FannieMae is in such hot water, nobody is likely to even care. Local lenders are trying to get project approvals one-by-one––projects that don’t have open and notorious on-site rental programs. And some of the big rental projects of the past (Summit, Chamonix, etc.) have already done away with the presence of their on-site rental programs. They now have “project approval” and available financing. Entities that were once operating as on-site rental programs are moving to off-site locations and continuing business. Webmasters are busy altering verbiage and presentations on sites (but ever notice how things linger on the web?). The condo projects that don’t take this seriously may see an erosion of value, at least as long as lenders want to sell their loans to the secondary mortgage market and these policies remain in place. And I can assure you that the asset managers handling bank-owned properties are in tune to all of this because they are looking more favorably upon cash buyers in the condo market. Nobody dealing with this problem believes it will go away soon.

At the same time all of this is going on, general economics is making many Association board of directors look at their expenses and management structures. I’ve been reading more and more association documents as a byproduct of handling bank-owned properties in these projects (and receiving the information). An increasing number of local property management companies are also emphasizing the need for associations to separate the actual property management away from the rental functions. Much of it has to do with allocation and delineation of costs and responsibilities, and the muddling of the two. And for years there have been claims of favoritism by management to owners who have their units on rental programs over those who don’t. Nothing like a sour economy to affect change. It will be good for some and not so good for others.

Meanwhile, if you’re looking to buy or sell a lower-end condo (within the conforming loan limits of FannieMae) in Mammoth it is probably a good thing to understand where any potential project stands as far as lend-ability. It is affecting values on a case-by-case scenario. More “expect the un-expected” in this economy. Just because a mortgage broker/lender says they can do the loan, be careful. A “no problem” response is the first sign that there is a problem. If there is an obvious on-site rental program then that is the first red flag that warrants further investigation and questioning.

But this too may pass, especially if our Congress and President decide everyone should have a tax credit for purchasing an investment-style second home, even if it walks and talks like hotel room. But I wouldn’t count on it. But the way things are going….

Happy Thanksgiving!! Despite all of it, we still have plenty to be thankful for.

Where Fools Don’t Rush In

Broker’s Report, Nov. 12––Snow anxiety fills the air here in Mammoth. For many it is the anticipation of cold air rushing past their face while hearing the crunch of fresh snow under their bases. For others it is financial: will the winter provide the necessary cash flow to service mounting debt? The anxiety for some is a question of readiness. Contractors, property managers, even the Town itself, can be caught by early and/or heavy dumps of snow and freezing temperatures. For many in the real estate business, the anxiety can be finding (and closing) a property for an anxious buyer who wants to own before the holidays, or before the holiday rental period. (Outsiders really don’t understand. It truly is a BIG deal for some.)

While the pre-holiday period can bring closure to many real estate transactions in Mammoth, it can also mark the beginning of a slow period too. Potential buyers and sellers have different reasons for becoming disinterested. Both can certainly become preoccupied and distracted by holiday focus and festivities. Or maybe it is just the short days. Besides the holiday distractions, buyers can become frustrated by the diminished inventory. Sellers, especially those with condos on rental programs, anticipate good upcoming rental income and just back off. Some sellers just don’t want people tromping through their properties with snow, and boots, etc. And after the holidays there is what I refer to as “the post-holiday decompression.” Typically the local real estate business doesn’t pick-up until mid-March or later. And there won’t be any Intrawest based sales “launches” to jack the market––they’ve deeply discounted and resorted to dumping their remaining inventory. The take-away: sincere buyers may want to pay attention during this doldrums period. Isn’t good luck defined as timing meeting preparation?

Foreclosures remain the most attractive buys, and the next few months may be the opportunity time. Last year the foreclosure/REO industry took a breather during the holidays, we’ll see this year. But my thinking about opportunity is founded on where the inventory is standing, and what the market is saying. Usually I try to wrap-up these Reports up with a discussion about inventory. This time it really is the significant market condition, and anyways, I have no hype to report about such-and-such development or some new delusional planning scheme. But we do have increasing air service. For us Mammoth residents, we may be considering a trip to Portland or Seattle just for fun.

So what is the inventory saying? We only have 170 condos on the market. That is a low number whether looking from seasonal or historical perspective. And 10 percent of those are Westin units––and Westin units are selling. Another substantial percentage is properties with list prices that buyers know are just unrealistic. Many have been on the market for eons. Those high list prices just cause disinterest with the majority of buyers and agents. (That is unless you’re willing to do some homework and negotiate intelligently.) The craziest segment of the entire market is condos under $500K. Sort through the overpriced and less-than-desirable inventory and there isn’t much left. Even the decent REOs that come to the market in this price range get jumped on with some potential buyers leaving the negotiations flustered. Even the dirt-cheap REOs sell. Maybe not immediately, but after 30-60 days on the market and adequate price reductions, there they go.

What we’re also seeing in the condo market are sellers willing to take loses, not short sellers, not foreclosures, just sellers looking to get out. And these sellers can afford to. They might be carrying paper (a recent Westin seller) or they may be willing to put cash into the closing to pay off the loan (and they’re not calling it a short sale). This is reminiscent of the early 90’s. And then we’re seeing the short sellers. Whether most of these short sales are good buys for most buyers is still questionable. But they’ll be in their new place for the holidays. And what if the buyers have to pay cash for the furniture? But more and more short sales are closing. Most sellers are making concessions to the banks to make the transaction happen. I was recently reviewing the closing file of a short sale. The way I read the short sale agreement between the bank and the seller (I’m not an attorney), the lender retains the right to recover the shortfall, forever, and ever. When there is tens of thousands of dollars (or more) in shortfall, forever is a long time for the bank to come sniffing for the deficiency. I just wonder how many of these short sellers are reading the paperwork. Of course, they probably didn’t read their loan documents at purchase time either.

The single-family market is quite interesting too. After three or four high-end foreclosures/REOs sold for very attractive prices, buyers looking for the same type of deal are coming out of the woodwork. We’ll see how many more of these high-end bargains there are to come. There are at least a few in the pipeline that I know of. But these properties were built for speculation and the speculation failed. There are only a dozen or so properties in the whole town that would fit into this mold. But there certainly could be shadow inventory lying around, especially in the Bluffs and Starwood. The good news (notice how popular that saying has become in the Great Recession) is that there are actually people anxious to drop two million dollars of cash into our middle-class ski town. Trust me, I’ve talked to many of them on the phone and they are ready, willing, and able. The inventory just isn’t there. But they need to pay attention if they want the opportunity.

The low-end of the single-family market is quite telling too. There are only six homes listed under $600K and just another five between $600-700K. Most of these would sell if the pricing were attractive to potential buyers. (The Internet has made most serious buyers very market savvy.) There have also been notable sales in the low $1M range––newer homes with plenty of footage and garage––with sellers selling at a loss but able to sell without negotiating with banks. Jumbo loan rates are coming back to reality, the only caveat is that buyers have to qualify (who knew?). Investors looking to park cash have also been scooping up a variety of single-family lots, with some attractive buys still lingering in the market.

Lately, one of the greatest confusions about the Mammoth real estate inventory stems from the way the public views the data exchange between the Mammoth MLS and the various Internet sites owned by local Realtors. The interface is not perfect, and many properties that are under contract and in escrow show as available. The reason: the property can be under contract but marked in the “active-backup” status by the listing agent. The “active-backup” status simply means the property is under contract but the seller will consider taking backup offers. If the transaction is a short sale, most lenders require it to be represented that way. Many agents don’t move the status of the property to “pending” (when the public would no longer see it as available) until all of the contingencies are removed, or sometimes not until it is actually closed escrow. Properties under contract can linger for months looking like they are still available on someone’s website when in fact they aren’t. I get calls from people all the time thinking properties are still available, and “oh, that just closed escrow.” What-you-see is not always what-is-still-for-sale.

The multi-family residential market (apartments) becomes more entertaining all the time. The ignoring of basic fundamentals by buyers (I refuse to call them investors), banks and even the Town of Mammoth Lakes is playing havoc. Several apartment complexes are now in the later stages of foreclosure with more to come. The Town’s Housing Authority continues to unload the byproduct of their own housing mania––the overzealous development of deed-restricted housing. I remember arguing with proponents and I was always told, “we can never have enough affordable (deed restricted) housing.” Okay, I was wrong again. The newly un-restricted San Joaquin Villas properties ended up selling well (mostly to bargain hunting second homeowners) and now they’re trying to offload the newly un-restricted Aspen Village units. These are very different properties that will end up with very different results. Meanwhile, market rents continue to decline as vacancies and supply are up, making it even worse for those who bought while ignoring the fundamentals. And even worse to be competing against government subsidized developments.

The REO business continues to bring absurdities. Just this last week we have a foreclosed condo owner trying to buy back their old unit. The bank may go along with it just to avoid the threats from a local attorney. And in actuality it’s really their parents trying to buy it (back). I’m trying to figure out what to tell the condo association about the $24,000 in back fees they owe them. I’m sure the association will welcome them back with open arms. And what about the rents they generated after the bank took ownership? And forget that it appears they may have defrauded the lender in the first place. The weasels are getting more weasely all the time. When did enabling irresponsibility become so fashionable?

This winter’s visitors will notice some visual improvements to town: the old Blondie’s building (which was foreclosed on) is gone for good––only dirt there now. The Clearwater/Mammoth Place property developer has new clarity and the old Rafters building is getting improvements (new roof, windows, etc.) and will open as an Italian restaurant. The Sierra Nevada Inn has been spruced up and their monument sign now looks like Grateful Dead memorabilia (dancing bears). AND they’ve put in a miniature golf course! Can’t wait to see how that works in winter. The old real estate office (the one that promised to put me out of business when they moved in) next door to me on Old Mammoth Road is being nicely upgraded into a new community bank building (that was the bank that foreclosed on the property). And also I can’t wait to see all the new tenants in the Village. I hope the leases are right for them this time around––no need to go through this again. Now we just need snow!

Mammoth Foreclosures 5.0––New Woolys and Cash Bullies

The Mammoth REO rodeo continues to ebb and flow. Sometimes we feel on top of things and other times we feel a little buried. My mantra of “expect the unexpected” is worth repeating for buyers, brokers, and casual observers too. The foremost wild card in the mix remains the asset managers who are handling the bank’s portfolios. Not only are they running the show but they are also mired in “policy” that is sometimes arbitrary or unexplainable and may or may not be followed. They’re watching their own performance levels, especially close to the end of the month. And don’t think they aren’t focused on where they plan to cocktail and chill for the weekend. Meanwhile, buyers are chasing these bank owned properties, and they too, based on their behavior, are a cast of characters.

The national media is full of stories about banks delaying the foreclosure process on delinquent borrowers. Some of that may be true and beneficial to the stabilizing some markets, but the beginning-to-end process for just one property is labor intensive and involves all sorts of “specialists.” And even in this electronic age the pile of paperwork is enormous. All the digital files including time and date stamped photos of everything and the scanned multiple offers (and their addendums) have got to be clogging up the web somewhere. And there is no consistency whatsoever. Nobody does anything the same way. Some properties can be turned over from foreclosure to on-the-market in just a few days, while others take months and months. (Some of that is due to bitter and belligerent previous owners.)

“How long is this going to last?” is becoming a question I hear daily. Serious buyers are weighing the deals of today against the possibility of lower prices tomorrow driven by additional foreclosures. I can only respond, “Who knows?” But the facts are this: First, there will be more foreclosures. The pipeline is continually moving properties of all sorts, from 70’s built dumpy one-bedroom condos to new or near new luxury homes and condos. There is no indication of any slowing of properties entering the pipeline. An equal number of properties are exiting the pipeline (via sale). It ebbs and flows, but it all remains fairly consistent. The second fact: We’re finding price support in almost all segments of the market. And much of the price support is at 50 to 60% off of the peak of the market. Now, buyers shouldn’t try to apply any strict rules here because every segment is a little different. And every property scenario is different. Some segments are actually seeing multiple offers and prices bid up.

So at what price levels is this support? The most impressive price support is in the condo market between $250K and $350K. Typically the classic early 80’s built townhomes––properties with more than one sleeping area, most of the projects and Associations are in respectable financial and physical shape, units usable by families in all seasons and rentable for some modest returns. But the non bank-owned inventory in this segment is thin too. The other impressive segment is the $2M home. Most of these were $4-5M in the heyday. The buyers for these have cash, and currently there are more of these potential buyers coming out of the woodwork and availability is scarce. The bank owned properties have also helped the local market find the bottom of the single-family home market––about $470K and up. Absent of any serious defects, this is a consistent price support level. And as for those 70’s built one-bedroom condos, about $100K, give or take.

The condo-hotel properties remain a challenging segment of the market. The buyers are predominantly cash buyers with a few of the big down/high interest rate types getting loans. But there are buyers. Most of these are selling at 60% off of the peak. And the pipeline is seeing more of these units coming. There are Westin Monache units that closed less than two years ago in the pipeline. Today, it is not unusual for owners to go 12 months or more without making payments before anybody even notices. So how many of these will end up in default is anybody’s guesstimate. The developer continues to try to unload units before it gets any worse. Meanwhile, the coming foreclosures in the balance of the Village and Juniper Springs will probably be good buying opportunities.

The buyers for these bank-owned properties are coming in all flavors. Many are new season pass MVP holders (New Woolys?). Many are cash buyers and their all-cash offers are looked upon more favorably by the asset managers. After all, there is no loan contingency or appraisal contingency (usually not an issue) and most all-cash buyers can close more quickly. And we’re seeing an increasing amount of “cash bullies” in the market. The cash bully typically lets you (and everybody else) know he has cash. They also expect their cash to get them really huge discounts, but it doesn’t. We see many low cash offers beaten out by qualified buyers with higher offers. Typically banks and investors aren’t ready to jump on low offers in the first 30-60 days. So cash bullies get lots of disappointment, but most like attention more than the buying.

Other buyers looking to low-ball bank owned properties are experiencing what is known as “the market educating them.” After losing out two or three times on popular properties they learn that making offers at 20-30% less than asking isn’t going to cut it. For a while we had an out-of-town broker who made the same $100K all-cash offer on every REO that came to the market. I’m still not sure if he was just a bully or became educated. Ultimately, the time to consider making a lowball offer is after a property has sat on the market for 90 days or more, but in this market these aren’t the properties most buyers are looking for.

Many negotiations are ending up in a “give us your highest and best” response from the asset manager. Potential buyers respond in many ways. Some just stay with their original offer, some go a thousand more, others go ten thousand more. And then there’s always the “I would have gone higher” response from a buyer who lost out. We’ve even had mad buyers who lost out insist that we give them the name and phone number of the asset manager so they can re-enter negotiations. (Not going to happen, it violates the confidentiality agreement we have with them and it is a sure way we will never to do business with them again.)

The buyer, and his strategy, who “wins” the negotiation is not always the same. This is where the asset manager wildcard plays out. Sometimes it is a horse race––the first one in with a reasonable offer. Sometimes it is a simple bidding war, but the clock still ticks. Sometimes the buyer and buyer’s agent who are the nicest (and follow the instructions) get the deal. Lately, we are seeing more properties priced aggressively but with “cooling off periods” of five to ten days, meaning the seller won’t respond until the property has had significant exposure to the market. But buyers can’t assume they should wait, we’ve seen asset managers accept an offer during the cooling off period. (Again, expect the unexpected.)

Then there is the buyer (or their agent) who actually does get to escrow and doesn’t under the concept of “as-is, where-is” in an REO transaction. Asset managers don’t like nit-picking buyers. They like buyers who move towards closing. Oh, there are rare instances when they will approve some repairs, but again it can really depend on arbitrary variables. And most times buyers just acquiesce anyway.

The latest scam in the REO industry (not Mammoth) are crooks taking the photos and details from a bank-owned listing on the Internet and posting them on Craigslist as an available rental. Potential tenants are forwarding fees and deposits only to find out they’ve been scammed. I wonder how long before this starts happening in Mammoth. Think about it, anybody could take the photos and descriptions off any listing and rent the property to unsuspecting vacationers. Talk about expecting the unexpected. So much for happy holidays.

Okay, so what is the current take-away from the present Mammoth real estate market and foreclosed properties? Buyers are buying and getting great deals relative to just a few years ago. The bank-owned properties are some of the best deals and are definitely setting the pace of the market, especially in the sub-$400K condo market and a handful of high-end homes. Buyers looking to buy will be rewarded with patience and persistence. Right now the demand is solid and consistent. But we need to move through the holiday and post-holiday (decompression) period. That is historically a slower sales periods in this market. Somewhere in spring we’ll have a better idea of how firm the market is. I’m thinking this interim period will be a good time to pay attention. A little luck and good timing never hurt a real estate transaction. And coming to look at a few new listings is the perfect excuse to get in a couple of days of skiing. Who knows, you might even get the unexpected perfect ski day.

Is This Any Way To Sell a Mammoth Business?

Some things just torture me. And a recent article in the Mammoth Times about a new business for sale just irked me. I just really have to ask myself how this came about? This was a gross disservice to these owners and potential sellers. What were the editors thinking? I’m criticized for being candid to a fault, but this was abusive. And where was the broker who represents them? Why didn’t he take control? In a small town, this is almost irresponsible journalism. In the era of Wally Hofmann this article would have been re-written because the flaws so glaring.

Every couple of years the subject of business and businesses for sale in Mammoth is a worthy topic for a column. I’ve had my share of business listings over the years and thankfully my professional insurance (known as Errors & Omissions) now prohibits me from listing them unless there is real estate involved. That makes me happy for my sake, and the sake of my associates. Quite frankly, small business listings are a pain in the ass for many reasons. But trying to help someone who is miserable is an honorable duty, at least for the first year.

So now to the subject. A couple of weeks ago the aforementioned publication runs an article about a new business for sale. I had seen the sign in the window and received a flyer from the broker (who isn’t a member of the local MLS). The event was no surprise and actually quite predictable. How many times have I seen this before and eventually become part of it? But here comes the obligatory press release in the local paper. The seller boldly announces, “I’ve had enough” immediately after the who, what, when and where paragraph. Reminds me of Roberto Duran uttering “no mas” in the boxing ring with Sugar Ray. The beating has obviously been had.

Now I can just imagine marketing a piece of property for one of my sellers this way. For Sale, this nice 3 bedroom and 2 bath home. The seller has “had enough” of frozen and broken pipes, the leaking roof and the bear invasions. But you Mr. Buyer should take great interest in it, and in fact should grossly overpay for it.

The article says the current owners hope the new owners (by-the-way, hope is not a good business strategy) keep the business “much as it is.”

“We’re going to encourage whomever buys it to not really change it. Because it’s not broken, it doesn’t need fixing…” Damn, I’m going to use that strategy with my buyers. Look Mr. Buyer, the current owner has “had enough” with all the problems but you should buy the property, and even better, you really shouldn’t even bother fixing any of these concerns because you can live with it until you’ve “had enough.”

The article goes even further to extol the features and benefits of owning this business: “In the past…she has been challenged in finding employees who are willing to work, and thus has experienced frustrating turnover…and quote ‘they don’t want to work for their paycheck.’”

And even more appealing, everyone was recently laid off because there is no money to “pay employee salaries and pay the lease, the utilities, taxes, worker’s compensation, the liability--––all the things that go with owning a business.”

Further the owner states that these aren’t the real reason for wanting to sell, it’s now about “restructuring her life to create more free time and not work six or seven days a week.” Wow, these are just more great selling points. I’m surprised there isn’t a long line of ready, willing, and able buyers just fighting with one another to buy this business.

I feel really bad for these owners/sellers. The Mammoth Times really kicked them to the gutter. Hopefully the article is not online where some potential buyer gets a look at it. This is not the way to start the marketing campaign. The article is a classic WTF moment. Did anybody have a clue here? I wonder if anybody thought it was a good idea to make re-prints of the article for marketing purposes? I hope not. Time, and the market, will speak to whether there is a buyer and at what price––and how motivated the seller becomes to walk away. After all, she’s “had enough.” When I first moved to Mammoth I was told there was an 11th Commandment in Mammoth: Don’t Set Yourself Up For Disappointment. True for life in general, but a very important one when trying to sell a business.

Sometimes I’ve had to tell people their business has no value, or close to no value. In the early 90’s I marketed a very popular restaurant here in Mammoth and after enough time and effort the seller settled for a price around the cost of a new Honda Accord. The buyer changed the whole concept and became a seller just two years later and eventually just folded. There isn’t even a restaurant in that lease space today. In 2003 I was fired from the listing of a famous sports bar. I was telling the owner the asking price was far too high. He told me that he needed another broker, one “who could think outside the box.” The For Sale sign is still out in front and I’m reminded every day when I drive by. And over 20 years ago I had a firewood company listed for sale. The work was too hard according to the owner. Well, now the company is bigger than ever and he’s married to one of my real estate competitors.

I hate to tell these new “sellers” of Mammoth Times infamy that just because they put the for sale sign in the window doesn’t mean there is a buyer, and definitely not with such a great marketing strategy. I think somebody has given them false hope. My bet is that if someone were looking, they simply plan to negotiate with the landlord. They’re called vultures, and vultures don’t pay for blue sky.

As a sidebar, recent property tax appeal hearings here in Mono County have highlighted the taxing cost of improvements, especially interior improvements, on a business. These can impact both owner occupied and leasehold properties. These taxes can rapidly erode a profit margin and few business owners consider them in business planning. For example, one restaurant and bar in the Village has almost two million dollars in interior improvements. The personal property tax on those improvements runs about $1500 per month. That is above and beyond rent, common area charges, utilities, etc. My junky old office furniture that depreciated out years ago looks better all the time.

Meanwhile, the precipitation of the last 36 hours here in Mammoth bodes for a wonderful winter ahead. So when you come to Mammoth this winter, please spend a little money in town at your favorite spot. It will be a small insurance payment that it will still be business the next time you come to town. Now back to business.

We Shall Always Forget?

This Q&A appears in this week's The Sheet. This is the unedited version.

Q: You haven’t written anything “spicy” lately and most of those columns have to do with development, so what do you see on the development horizon in Mammoth?

A: Well, “spicy” isn’t the goal, just the byproduct. Over the years I’ve had the pleasure to work with many of Mammoth’s older and more experienced brokers (many of them actually worked in MY company before they retired). As a consequence of the experience, it reaffirmed that I never wanted to work directly (as a listing broker) for a developer. Part of it is a defect in my personality, but for the most part I’ve never wanted to be “owned” or beholding to one entity, especially not a real estate developer. Now don’t get me wrong, I’ve worked for them, with them, and listened to them ad nauseam (mostly in public meetings). I just don’t want them to be able to tell me how to run my business or put undo pressure on me to sell their product. And I certainly wouldn’t want them telling me when I can and can’t go skiing or fishing (or what to write in my blog). Life is too short.

Recently, after discussing some of the unfortunate ramifications of certain real estate developments, I was asked by one of my younger associates, “If you had to do this all over again, what resort would you pick to be in real estate?” Well, he advertises that he loves Mammoth, but just the fact he asked the question of me tells me he’s asking the question of himself. I personally can’t imagine myself anywhere else. Kissing ass in Aspen? Freezing my ass in Jackson? Growing moldy in Whistler? Not me. And anyway, for better or for worse, I’m a California boy. And I often remind myself of the quote from Emerson, and I’m paraphrasing from his Old English, “Though we travel the world over seeking the beautiful, we shall not find it unless we carry it with us.”

Mammoth remains a quirky and fickle place for many reasons, and nowhere does it become so apparent than in the planning and development. Developers have come and gone and left plenty of scars. Leadership, thought, and execution has lacked continuity (and perhaps credibility). The economic realities of a resort town are a harsh teacher for many dreamers. There have booms and busts. But the sun does shine more often than not and even in “bad” snow years the conditions can be great. Sometimes I think the visual and recreational distractions that surround us make us more complacent about the finer points of the human made environment. And that is true for many of our visitors and second homeowners––there’s plenty of shopping and restaurants where they came from. If that is their priority maybe they should just stay at home.

But the longer and deeper I look at all of this the more I think we need to recognize the influence of the Sierra Club. And rightfully so when you consider we are nestled between the two Wilderness Areas named for the founder and most famous members of the Club. This 100-plus year old institution has grown large in membership and powerful in their influence (and they have the attorneys to back it). They are like the invisible 800 pound gorilla in the room here in Mammoth, and they’re here to stay and will outlive us all. We can only be reminded as we watch expanded air service work its way into Mammoth this winter. The Sierra Club basically delayed the program 10 years and downscaled plenty of ambitious plans. (Just think of all the empty and really devalued condo hotel units there might be.)

And as the Sierra Club taketh away, they also giveth. Pristine mountain areas are coming under greater and greater attack by developers, utility companies, miners and disrupters of all sorts. (Don’t be surprised if the Club becomes proactive in the legalization of marijuana just to get the growers out of the forests.) Government ownership of land is about 95 percent in our county and more is reverting to government ownership than to private ownership. The land around us is becoming more protected all of the time. So maybe they are saving us from ourselves. The lack of (real) overdevelopment and free access to publicly owned open space is becoming our greatest asset.

Meanwhile most Mammoth real estate is priced below replacement cost. That doesn’t make an attractive development environment. Commercial and development lending will be compromised for years to come, and double that for resort areas. All of this is good for most segments of the resale real estate market. Demand is beginning to exceed supply in some segments of the market (it’s a start). But don’t forget demand is elastic. One of those segments is the condo hotel market. (Readers wonder why I dwell on the condo hotel market: it represents the bulk of the remaining vacant land (and density) slated for development AND this product is a critical bed tax generator for the Town.) As buyers/users/investors move back into the market at prices 50% or less of peak, some interesting challenges are exposed for future condo hotel developers. We are seeing some fundamental demand for condo hotel properties. So what added value (worth) is a developer going bring to a new property to make it profitable to build? (It’s about “adding value” from now on––not just building more.)

The Westin presence, and its better quality construction, is not making a substantive difference at this time. The lack of financing, the upcoming stream of foreclosures, and a healthy supply of both developer and privately owned inventory should keep the values suppressed for some time. So what will add value? Is it the added air service? The ski-back trail? Not likely. This is their challenge. Even worse, more and more owners of condo hotel units are turning to self-renting: using online resources to advertise and self-manage rentals. It is possible the underground garages of these properties will become a stream of third-party maid vehicles. The owners who have the time, or really need the income, are getting creative and competitive. And cutting out the 50% management fee is a big first step. All of this may be adding some value to individual units but not to the bigger picture and the marketability of future units and their front desk operations.

One of the reasons buyers are finding the condo hotel properties attractive is their matured functioning. The early condo hotel properties floundered. This was a big development mistake (but they don’t care, they already split). The buyers were pitched and sold a quality product on all levels and received far less. The Westin was the only property that had the operations remotely figured out from the beginning. The next round of buyers for new properties may be smarter too. The other quandary is the pre-selling process. Too many people have been burned: from missing deposits, to deposits walked away from, to the unfavorable fine print in the contracts. And the collective consciousness may very well want to touch and feel the finished product before buying this time around. And that will create further difficulties for the construction financing.

Other segments have challenges too. There is demand for nice townhomes (condos), but at prices that aren’t going to excite developers. It’s a good time to get entitlements and fine tune their floorplans, and pray. And high-end home developers are now the latest part of the foreclosure cycle.

My take-away is we can plan to our hearts content but some future Planning Commissioners or Town Councilers (who probably don’t even live in town yet) will cave-in under the developer’s persuasion at the podium. That’s not my cynicism, just my experience. I remember in the early 90’s Rusty Gregory describing the future Village Gondola building as “the Eiffel Tower of Mammoth” and how there was no need for restaurant loading docks in the Village because the lease space would be “so valuable” that the food preparation would be done at offsite commissaries and shuttled up to the Village. The Gondola building couldn’t be more non-descript and the SYSCO trucks always seem languishing in the Minaret meridian blocking the crosswalk that was suppose to be a pedestrian bridge. And why are the dumpsters right next to the entry at the Westin? And the noise is horrendous up against the seven-story concrete structure while they’re being emptied. Nice first impression. Ah yes, we shall forget.

The Return of the Impulsive Buyer

Summertime in Mammoth provides some humorous glimpses of human nature. And after all who really cares--––--these people are on vacation. The first location, of all places, is in VONS. Sometimes I think I frequent there just for the entertainment. In summer there seems to an especially large number of folks who are obviously not regular visitors to supermarkets. Often they are middle-aged men (I imagine them having to work in three piece suits, the poor souls) but also families as a group. The clue is that they’re standing around in the middle of the isles looking bewildered or lost (and usually oblivious to the fact other people are shopping). Then there’s the looks of amazement—you can read that “they really make this” look on their face, or the “why doesn’t she buy this for me” look. Yeah, pal they really do make….. And I’d probably be just as out-of-place entering a 50-story building or shopping for a tie.

A second source of entertainment is people who haven’t ridden a bicycle in years who decide to enjoy one of Mammoth’s greatest pleasures. The phrase “just like riding a bike” isn’t so true when the bike has modern technology like sensitive hand-initiated brakes and 21 gears with thumb shifters. And then people forget they’re at 8,000 feet of air-starved elevation and those seemingly mild rises in the road aren’t as easy as they appear, or that unexpected breeze is now a significant headwind. And that poor youngster on a little pink bike can’t keep up with dad on his high-tech mountainbike (and dad’s usually yelling).

So what does all of this have to do with real estate?? Plenty. People who don’t shop for certain products on a frequent basis can easily get lost. The selection and variety at a major supermarket is almost as confusing as the selection and variety of condos in Mammoth. And if you haven’t purchased a piece of real estate in the last five or ten years, then utilizing those 21 gears to your best advantage can be perplexing too. Today, when people walk in the front door of the office looking for “a list” or some “magazines” it seems archaic, but it was only a few years ago that it signified that someone might have real interest.

So now to the real story. Down markets like we’ve experienced the past couple of years are notorious for exposing poor real estate decisions. This last cycle was especially marred by too much debt, too much speculation, and too much expectation of rental income. Along the wayside many also forgot some basic real estate theories like the importance of location, due diligence, and the concepts of incurable defects and property progression and regression. Many long-time investors and real estate “professionals” made plenty of mistakes. Some cut their losses early and others will hang on to the end. But we can always learn from the past.

Buyer’s markets in real estate (like now) are not times for buyers to forget the characteristics of a quality investment, or to be in a hurry. But recently I’m seeing it all over again. Today’s foreclosures and distressed owners are often a result of reckless buying (and financing) or simply hastened or impulsive purchases. The values (prices) of yesteryear and the values of today have only made things worse. But with values down, and down so quickly, we’re seeing some buyers returning to their impulsive ways, or believing agents who don’t know the difference themselves.

One of my competitors is touting the marketing slogan “Smart Buyers are Buying Now.”
And plenty of smart people are in the market and many are buying. But how smart are they? I see that some are just non-discerning vultures swooping in looking for low prices. Most of them think they’re smart. Others are unhurried and taking the time to become educated. Education can mean many things. And the Internet makes information plentiful. (In fact, due to the rapid evolution of real estate marketing in the past ten years here in Mammoth, the volume of websites and information available to the consumer is staggering for just our little market, especially when compared to other resort towns or even metropolitan areas.)

One of the beautiful aspects of Mammoth’s condo market is the supply and variety. I call it the 31 Flavors. But there are plenty of things for buyers to be aware of and take into careful consideration. Many of the older projects are deteriorating and some have taken on massive and expensive improvement programs. Some are just pecking away, piece-by-piece at their problems. Potential buyers are always questioning the apparent high common area fees. Many buyers think that being close to the lifts on a summer day means close to the lifts on a winter day. Winter oriented buyers typically underrate the value of being close to the shuttle. Others just want to be close enough to their favorite restaurant or bar. And some just like chasing shiny objects until they’re hooked (I just love fishing analogies).

The condo hotel market becomes more interesting all the time. I see closings on ho-hum units and really scratch my head. Are these the same people buying random repos in the Inland Empire thinking that “just anything” will be a good investment because prices are low? Could be. (Is inflation a given?) A view of the dumpsters is not that desirable. But with prices low and cash required it seems like everything, and I mean everything, is selling. And there is some saving grace: even under the most favorable conditions it will be years before another condo hotel project is built (completed), so go ahead and buy the junky units, they’re almost bound to go up in value especially if air service from all these far away places succeeds.

I’m watching the single-family home market firm up (finally) and most buyers are making serious tradeoffs and concessions in the lower end. But that is now indicative of the market trend. As buyers look in the higher reaches of the market (which is $700K to 900K) they should be more discerning until they can’t be. The problem is the older homes are usually in the better locations and have owners who think their property is “perfect.” Time to shop for a discounted price and a hungry general contractor. Just pay attention to the defects of the property––a contractor can only do so much. The good news is there is still quite a variety available to fit many needs and tastes, even Swiss Alpine pink.

If this level of activity continues there is bound to be some local agent who announces the market is skyrocketing back up. Perfect!! That means it is the time to buy anything and everything just like 2004-06. Now we just need those stated income loans back. But this time around we hopefully won’t be listening to the grandiose illusions of carpetbagging developers

Remember, good brokers don’t let their clients buy junk.

Is that a bird? A plane? No it’s…

Broker’s Report, August 28––Longtime readers here know I’m more realistic than hyperbolic and I fall back on my decades-ago journalism training to report rather than distort. With that said I’ve been writing a post for the last three weeks that isn’t close to being finished but this post is now more important. One of the reasons the post hasn’t been finished is because I’ve been busy––out in the field with buyers and in the office putting out fires. It is a little early for a Broker’s Report but the market has shifted gears and I feel this information is noteworthy. And I’m going to write this fast.

There is no doubt that the local real estate market has changed in the last two weeks. The level of interest, property showings, and transactions moving to escrow has increased dramatically. This is a level of activity we haven’t seen for probably three years. The market segment I’m most impressed with is the low-end homes, those in the $500k to $700K range. This segment has drifted in the past 18-24 months and is now experiencing significant demand. Buyers are making offers, searching for the seller’s bottom line, and heading to contract. In the next few months it will be interesting to see if this activity moves up the line to the $700K to $1M range. And man, there are some old dogs in that price range--––I was just showing them.

Bank owned properties that have sat for months are now experiencing multiple offer situations with some buyers losing out and disappointed. We just scratch our heads and wonder, “where were these people two months ago?” Accusations of wrong doing by the losers are the norm. No pal, the asset manager made the decision, you just thought you could steal this property and somebody out-bid you. Speaking of asset managers, we know they are very busy but the new tendency is to take longer to respond to offers and during that delay more offers come in--––it's working in their favor right now. Well, maybe. Meanwhile there is a steady ebb-and-flow stream in the foreclosure pipeline. And with a potential end of the owner-occupied moratorium on Sept. 15 we’ll see if the hammer finally drops on the multitude of them that have been delayed. And we’re finally seeing some $1M-3M homes getting foreclosed on. They will ultimately sell well below replacement value and there’s plenty of buyer interest.

Another area of change is short sales. The lenders are obviously becoming more favorable to short sales in this resort market place. We’ve seen a number of them actually closing in the last month. It is still a transaction filled with uncertainty for all parties. Some are joking that short sales are really long sales. But I’m not necessarily seeing any buyers getting any screaming deals. I’m still holding the line that buyers should be seeking quality and not the lowest price, but that doesn’t get you bragging rights at the bar, or on the chairlift, so I’ll just keep that to myself. There are two dynamics at play here: if the market continues to see activity and experiences an eventual firming up, will buyers want to engage into a short sale that is potentially lengthy and uncertain while other good properties come and go on the market? And will motivated sellers finally realize that a short sale may be no better than a foreclosure for their credit, tax return (especially in the State of California), and self esteem and not bother with the process? I have counseled my agents to steer clear of giving any advice to owners/sellers about the value of a short sale versus foreclosure. Only time will truly tell. But people in that situation shouldn’t be relying on the advice of a real estate agent.

The low end of the condo market is almost void of quality properties, and we’re just hitting September. I was expecting a rush for crashpads, after all there are 40,000 season pass holders and they’re not staying at my house. So has the rush already happened? I don’t think so. The fire sale prices at the Westin Monache are looking better all of the time. The higher end quality townhome product—The Timbers, Lodges, Juniper Crest, etc. in the $800-900K range are moving and there are an impressive number of cash buyers. Many of these properties were selling for an additional half million dollars or more just a few years ago. Only a handful of similar properties appear in the REO pipeline. Snowcreek has been a popular target for buyers: older townhomes (mostly 3 bedroom + loft units) on the riparian corridor (rare fabulous settings) in the older phases and well priced 3 bedroom/3 bath/1 car garage townhomes in Phase 5. With plenty of supply, those Phase 5 units may remain good buys for a while. Just get me a shuttle bus out there.

Unlike the earlier years of this decade, today’s buyers don’t appear concerned (or even interested) in Mammoth’s future as a chic resort. They rally for the return of the Yodler (maybe even the Rafters). They appreciate the improvements on Hwy. 395. They hope they can make it up the beautiful new bike path into the Lakes Basin. They would like to see the Village functioning like a Village and they would love a Trader Joes but they are more interested in what is already here rather than what is proposed or promised. And Mammoth real estate is on sale at discount in their minds. The new winter flight options to Reno, San Jose, Portland and Seattle are very interesting indeed. But with Alaska Airlines in charge it seems natural. I think Mammoth locals will be spending more time in Mexico. It should be a very interesting winter.

Where were they five years ago? The pendulum has swung. Now the Feds seem to have their noses in everything, from how appraisals are ordered (nobody is served there), to what condos Fannie Mae will approve/lend on or not, to policies set for bank owned properties. Guaranteed, things will just get more screwed up. I have warned my associates that the only thing to expect is the unexpected. I have now warned you--––an even better reason to work with the right real estate agent.

Recent assessments of the resort and tourism business have shown a clear decline but have also shown the prosperity in drive-to resorts (just when we’re finally getting air service in place!). So Mammoth’s often-thought drawback has once again become an asset (just like the altitude will be in global warming).

So let the naysayers have their day and their say, but the real estate market in Mammoth has pushed to an almost bizarre level of activity. And we’re just beginning (on the calendar) the traditional fall selling season. Pray for snow. Well, not yet. Now back to work.

Is Sideline Cash Getting Antsy?

Broker’s Report, July 30––I find it fascinating to correlate what is happening in the national and global financial markets to what is happening in the Mammoth real estate market. Years ago we relied on an early-printed edition of the LA Times and the nightly news on television for our outside-of-Mammoth information. Boy does that seem archaic. And decades of observation here in Mammoth shows that everything has to be considered in seasonal context. Understanding the ebb and flow of people is critical to business success.

So the stock market is rallying, new home sales are up, and the pundits are calling the bottom. But most are recognizing we’re likely in for a long, slow recovery marred by whatever flation we’re going to have, ugly unemployment stats, and other unpleasantries. So what is causing this market rally? Is it the same reason that people are plunking down cash to purchase properties in Mammoth? Some of this is really serious cash in the million-dollar plus range. With financing in the toilet right now it is not uncommon for condo buyers to pay cash in the $200-400K range for their new Mammoth condo. It all seems to me that the people who have cash are getting antsy to get it invested some place. Well, it’s not really my imagination, I’ve been told that directly. Is there a correlation to the stock market––pent up demand to place cash into some sort of investment?

So what is really happening in the local market? First, understand this is typically an ebb period for Mammoth real estate. In case you haven’t looked at the temperature outside, it’s hot. It’s even hot here in Mammoth, which means very nice. But most people aren’t thinking of skiing. The market doesn’t normally see demand until there is the “anticipation of winter,” triggered by the kids back in school, football games to attend and watch on TV, and the ski and snowboard magazines arriving in the mail. And for many, the arrival of a long-ago-paid-for new ski pass (the real number is purported to be around 40,000 here at Mammoth). So to see cash buyers and general interest in real estate is quite encouraging. Now if we only had financing for half the properties in town.

Inventory remains stable. Oddly, the condo inventory is on the low side, especially if you scrub out all the Westin and Woodwinds properties (Intrawest has put everything they have left on sale at deep discount much to the chagrin of all their past “preferred” customers). And there are still plenty of short sale offerings tempting buyers to join the dance. Conversely, the single-family home inventory is a bit on the high side, with plenty of unrealistic sellers still in the bunch, and an assortment of short sale offerings, a few REOs, and a concentration of 11 homes listed just in Starwood (there’s only 54 lots in the whole subdivision). Oh, and there’s small-but-increasing number of Notice of Defaults in the single-family pipeline. Some of these are what would be considered “trophy homes.”

The lending restrictions imposed by Fannie Mae continue to be a major headache (see my last post). Condo hotel units and regular old condominium projects that have “front desk” reservation companies are not meeting project approval guidelines by the underwriters. Right now half the projects in Mammoth are not lendable. Okay, Guido can get you a loan but you won’t like the terms. Local mortgage folks and some out-of-area brokers are trying to solve the problem one or two projects at a time. It is a case-by-case situation for buyers (and sellers) and rejection can come at the last minute. Meanwhile, acquiring financing for single-family and other projects without visible rental programs appears to be no problem. Snowcreek properties, for instance, aren’t a problem right now. But there is a major rental entity on the grounds with the Snowcreek name. Let’s hope the underwriters don’t Google down too far. And the lack of financing is obviously not helping sellers and their values.

The Westin Monache continues to be an intriguing case study. Don’t get me wrong, the place is nice, really nice, and very popular. It is clearly the nicest place to stay in Mammoth if a luxury hotel experience is what you’re looking for. If the prices go much lower I will consider buying a unit there for my retirement years. And the values are heading there. The first foreclosure happened there last week and there are more in the pipeline. The developer has reduced prices to move their inventory (and there’s plenty of it). Non short sale Studio units are now price at or below $200,000. Short sale listings abound. And there’s no financing, except from Guido. I hope they can keep it all together.

The infamous Clearwater project (Old Mammoth Road/Sierra Nevada Inn) is history. It now has a new architect and a new name––Old Mammoth Place. The new plan has been well received by the public officials but I still contend it is way out of place. And just what we need; more condo hotel units and more retail space. But there is an ice skating rink. I’ve seen so many projects with ice skating rinks in the original plans only to have them evaporate come construction time. Has anyone ever tried to think through this capacity argument that I’ve been making for years? Everybody who knows me knows I was a major skeptic about the Tallus and 80/50 projects long before shovels went into the ground. I was told I “better get on board before the train leaves the station.” I guess I’m still at the station. I laughed at local real estate agents who were making deposits and reservations in these projects as speculative “investments.” But, what the hell do I know? What really pisses me off is here’s a guy with a boatload of money and what appears to be real sincerity about the community who wants to be a developer and he got sent down such a lousy path. The ironic thing is I watched it all happen right out my office window and couldn’t do a thing about it.

Okay, let me address a couple of questions posed in the comments section of my last blog post. First, the issue of property tax reductions. I can’t speak for the Assessor’s office, but I get to watch closely. The Assessor has been very transparent about this process with articles in the newspapers and public presentations. There is huge pile of work being done. But the reduced assessments can’t simply and immediately drop to recent comparable sales. First, all appraisal work is historical. On the way up they are lower than sales. On the way down they are higher than current sales. In the daily practice of real estate brokerage we contended with this during Goldilocks and we’re contending with it now––just different problems. Also, the other lag is the tax year calendar (starts July 1) and when the “roll value” is established. All of this creates a downward stair-stepped lag in assessments. You can always appeal. But property tax law in California is a big body of law and good luck if you can find anybody who understands it all.

The other issue is price support in the Village. There are only nine units listed for sale in the Village out of hundreds of units. And a couple of them are short sale offerings. At the current prices these would likely be sold if financing were available. The statement about price support was a reflection of dealing with a number of bank-owned properties in the Village in the last 6-8 months and seeing buyers compete over them. Yes, values are down and down below the sales of 2003-06. But which values aren’t down? Mine are. The key is there are cash buyers at certain prices. We’re working on one right now with multiple offers (so really there’s only eight on the market). I consider that price support. Without this kind of price support maybe you should just mail the keys to the lender. Recent studies are showing that many defaults and foreclosures are simply people with negative equity, who can actually make the payments, just throwing the towel in. I don’t know what is confusing about this level of price support, it’s a good thing for current owners. At least the developer isn’t still holding dozens of unsold new units. We are also seeing price support in low-end of the single-family market. Recent sales of decent homes in the $500-600K range would substantiate that. The listings below that range are pretty substandard and/or short sales.

The months heading towards winter shall be telling for the Mammoth real estate market. How many new pass holders will be looking for crash pads? How much antsy cash will come off the sidelines looking for good buys in Mammoth? Will the default pace slow or quicken? Will the lending quagmire begin to resolve itself? And maybe most important for all those invested, or want to be invested, in Mammoth; will the owners of Mammoth Mountain give us some positive sign other than an announcement of additional air service as to their commitment to their enterprise here? Too many news stories about major layoffs, serious over indebtedness, and giving property back to banks, doesn’t exude confidence. Of course, this is California, what did you expect? And people are starting to buy it up again.

Mammoth Foreclosures 4.1--Postponements and Opportunities

Sometimes life in the small town of Mammoth becomes a bit bizarre, and the dog days of this summer have found us here again. Too many lovers of life have recently lost their lives. And just when we thought financing properties couldn’t get much more difficult (at least in this decade), our “go-to” mortgage banker over the years has passed away. The vacuum in the local market is substantial and is unlikely to be filled for sometime. He wasn’t the type to do the cherry-picking portfolio lending, he was doing the dirty work. This is a guy I talked to almost every day about the vagaries of the lending environment. We tried to help each other solve our business problems.

The last few months there were major crisis, namely “project approvals.” Oh, how the financing pendulum has swung in the last three years. Today, lenders don’t want to loan their own money, they want to be able to sell the new loans to the secondary market, to be precise, Fannie Mae. Well Fannie Mae is the Feds now and everything is under high levels of scrutiny (and risk assessment), especially condominium projects. Condo projects in resort towns are coming under greater scrutiny and new red flags are cropping up at every turn. The term condo hotel has become the scourge of the lending industry and is pretty much encompassing any project that has anything close to resembling a nightly rental program, front desk or website marketing. It has become guilt by association (is that a pun?) And Mammoth is full of condo guilt. I guess the dismal state of the hotel industry hasn’t helped much. And now we’ve lost out quarterback in the midst of this credit crisis.

Beyond balking at nightly rentals, the project approval process is drilling down deeper into financials and budgets, they’re scrutinizing details in reserve studies and common area delinquencies (the next big shoe to drop). They’re looking at corporate and LLC ownerships and multiple ownerships. Some projects were getting approved after great lengths, only to lose approval shortly thereafter. All of this is taking plenty of work and cooperation from the Homeowners Board, the HOA’s accountant, and even government agencies and title companies. On top of all of that frustration, I was hearing more complaints about the new government mandated third-party appraisal ordering system. Apparently appraisers unfamiliar with the market were assigned appraisals and they in turn relied on local agents for critical information, and there were mistakes being made.

Now a lot of this may sound like tedious administrative work, but there’s more to this game than filling out forms and putting it all into a file. Our “go-to-guy” knew how to talk to underwriters, bankers, and investors––the people who make lending decisions on the critical day, or at least open the door. He scoured the different sources for investors and loans and sold the product––Mammoth and the people who buy here––to financial people in the outside world. Sure, plenty of monkeys were pushing loans through during the goldilocks era, but outside of that gilded age Mammoth has always needed unconventional help in getting real estate financing through. Having a variety of lenders in the market is critical for transactions, especially in the midst of a credit meltdown. Stuffy institutional lenders aren’t likely to be much help in the near future. Basically, if you were looking to buy in Mammoth in the next two years and there was a hint of “challenge” in your loan, odds were you would be talking to this guy, but now you won’t. We’ll see who fills the vacuum.

Oddly, while all of this is going on, condo inventory offered for sale is on the low side, especially considering the time of the year and all the other market and economic conditions. Hopeful buyers and sellers are still waiting out short sale transactions, my condolences. And cash may be a bigger king if we can’t get reasonable loans. And none of this will help values.

Meanwhile, the foreclosure pipeline is filling with all kinds of interesting opportunities to come. I’m seeing an increasing volume of defaults, including a limited number in the condo hotel properties, and the start of serious defaults in high-end homes. The few owner-occupied properties in default continue to have their Sales delayed due to all the government intervention, but their foreclosure is inevitable. In the last 30 days we’ve seen lenders move away from any appetite for short sale consideration and move quicker toward foreclosure. The typical mid-summer sales lull (combined with the present-day financing challenges) is causing an increasing inventory of bank owned property that will ultimately see slashed pricing to “get it off the books.” The banks are moving slower but more methodically about bringing them to the market, and recently most have decided to proceed through full-blown evictions regardless of their occupancy status. Right now my company is managing ten properties that will come to market in the next 45 days. By late summer it may be 20 or more.

Postponement is the order of the day in the foreclosure world. Forget the conspiracy theories––the whole system is so clogged, probably at 500% of capacity. But the clog seems to ebb and flow. Here in Mono County the recent statistics are revealing. In May there were 34 Trustee’s Sales scheduled. Only eight were foreclosed on. The rest were postponed. In June, there were 49 Trustee’s Sales scheduled (including some postponed from May) and 11 foreclosures occurred. In July (this month), there are 47 Trustee’s Sales scheduled already and by mid-month only three have been foreclosed on. (By-the-way, the public is not showing up at the these Sales to bid on properties.) So why all of the postponements? From what we can surmise from a variety a sources, approximately 20-25% are now bankruptcies. These properties are now going to be stalled in the pipeline for a good six to 18 months, maybe longer. The other bulk of postponements are owner occupied properties affected by some temporary State or Federal intervention or properties lost in some short sale transaction or delusional loan modification negotiation. The rest of the postponements are the inevitable waiting to happen.

So what are these opportunities going to look like? Well, each one is different and there is already quite the spectrum. For those opportunists who don’t mind doing a little work, there will be great deals, especially if the property sits on the market for 30-60 days without an offer. Some of the other properties the banks are putting tens of thousands of dollars in repairs into so that they will ready to finance––things like new roofs, appliances, paint, flooring, etc. There is also another round of newer condos in the pipeline. So far the buyers have loved those. And beyond that there are homes in the $1M plus range that are in default (and have been for a long time) that now the banks appear to have lost patience. So really, opportunity all over the board. We may be on the verge of quality properties selling below true replacement/reproduction value. The strongest price support has been in the Village and homes in the $300K to $700K range. I’m sensing some really attractive pre-winter “crash-pad” buys. Homes in Bishop in the $300K range have strong support. And there are affordable buys showing in Crowley in both homes and condos.

On a side note, those watching for good bank owned opportunities shouldn’t rely solely on websites powered by the Mammoth Lakes Board of Realtors® MLS data, or IDX as it is known. The Board has denied the confidentiality rights of our clients including banks, lenders, and their servicing companies. It’s a disservice to the public, but my company will gladly keep you abreast of the market in lieu of their decision.

And if you ever wanted to talk to me, the last three weeks has not been the time. A serious case of laryngitis has killed my voice. Some think it is about time I shut-up, or some think it’s the opportunity to get their say in. Regardless, if you want to talk to me, please send me an email.

Don’t Forget This Fact, You Can’t Get It Back

I’m back from a tropical vacation where I am still impressed with a service level that was beyond remarkable in very demanding circumstances. And it is always great to come back to Mammoth. It takes me a few days to figure out which way the wind is blowing once I’m back here in town––being gone for two-and-a-half weeks always seems like I’ve missed a year. One thing I was curious to see was if any of the media outlets or maybe even Mammoth Mountain themselves would discuss the topics from the National Ski Areas Association 2009 National Convention and Trade Show held May 13-16 on Marco Island in Florida. I didn’t go but I was paying attention to the reporting by Roger Leo on the Mountain News website. I found no local discussion or even mention of the event(s).

The keynote speech (as reported by Leo) was by Joseph F. Coughlin, PhD. Coughlin is founder and director of MIT's AgeLab and a member of the White House Conference on Aging. His topic: "Disruptive Demographics: Baby Boomers and the New Business of Old Age."

"You're all looking at your demographic getting older, and you're getting nervous," he told a packed house on the second day. “You actually own the relationship with part of the boomer generation that everyone else wishes they had. Aging is very, very new. There have always been older people, of course, but now they come with expectations, wealth and the belief they can age better than their parents and grandparents.

"Do any of you feel you're aging the same way your parents or grandparents did? Raise your hand," Coughlin said. No hands went up. "Life expectancy in 1900 was 46 years old. A hundred years later, life expectancy is generally 77 to 78, but that's way off. The fastest growing part of the population is 85 plus."

"The biggest problem boomers face is managing time, not just to go to a resort, but to have time to go to a resort," he said. "Retirement is not do nothing, it's go do something else." Coughlin warned that older consumers are not captured assets, that brand loyalty is earned, and that older does not equate with disabled.

"The future is looking grayer and far more female than we've ever seen before," he said. "Boomers want good service, good vacations, good experiences. What you're competing for is wallet share and time share," he said.

Coughlin said the older consumer is older than ever, healthier, better informed––or at least believe they are, wealthier, caregivers and female. Women are increasingly influential among boomers, he said, serving as "generation gatekeepers" through higher levels of education, increasing presence in the work force, longer lives than men, and roles as primary caregivers and family CEOs.

"The biggest difference between boomers and their parents is the expectations gap. Parents would say, ‘That's old age;' boomers expect a silver bullet to make things better. That expectations gap is your market opportunity, it's how you can delight them," Coughlin said.

He finished with 10 observations on boomers and fun:

1.) Time is a premium.
2.) Personal health and wellness is key.
3.) Boomers seek focused renewal.
4.) Resorts should engage women.
5.) Longer work life for men means older folks will still have and spend money.
6.) Make things easy to use.
7.) Remember the boomers consider themselves youthful.
8.) Engage grandkids with grandparents.
9.) Don't overlook the importance of the Web.
10.) Build through social networks.

The next day, NSAA President Michael Berry spoke about the specific message of Coughlin's thesis for ski areas, warning that market research and demographic analysis suggested a bleak future unless ski areas work hard over the next 10 to 15 years to bring newcomers into the sport, and to keep many of them coming back. Berry's presentation on Friday May 15 included what he called "the scare slide." Screens in front of a roomful of ski resort owners and operators displayed a timeline of skier visits declining an average of 2.5 percent a year, from 57.1 million in 2008-09 to 41.4 million in 2020-21.

"If we do just what we're doing now, we'll see that projected decline," he said. "The fact of the matter is we need to talk strategically about how we bring people to the sport, how we grow it," Berry said. He said that would require growth of 6 percent in trial and 1 percent in conversion rates, and cutting retention loss in half.

"That's achievable. We can do that," Berry said.

Berry outlined a "Beginner Cookbook" with 10 recipes for attracting people and keeping many of them as skiers and snowboarders.

1.) Provide information about what to expect prior to the visit.
2.) Improve the arrival process with signs and greeters.
3.) Focus on boot fit and providing extra attention in the rental shop.
4.) Have small lesson groups of six or seven students.
5.) Place students by athletic ability and learning goals.
6.) Staff beginner lessons with senior instructors.
7.) Focus on personalized lesson closure.
8.) Provide roving instructors for non-lesson takers.
9.) Follow up with guests and invite them back.
10.) Create a culture with all resort staff of valuing beginners.

"Inherent in both beginner conversion and core retention is the continuing delivery of value," Berry said. "For all groups at the end of the day the fun must outweigh the money spent and the hassle to get there."

He concluded with the warning that the ski industry is in for game-changing generational shifts in its marketplace. Programs to make skiing easier and more fun were put in place 10 years ago to keep existing boomer customers and were very successful, Berry said. These combined with an increase in Gen Y customers to help the ski industry dodge a bullet, he said, but are no longer enough as the industry looks ahead.


I know at least one representative from Mammoth Mountain attended the convention. I sure hope our leaders are listening. Thankfully, Mammoth isn’t all about skiing. In fact, as summer begins I am reminded of the old saying “You come for winter, and stay for summer.” The spring rain has made things as green as I can remember. It should be a beautiful summer. Now I’m back to work, it looks to be a busy summer ahead.

Happy summer!

Where Do We Go From Here?

Broker’s Report, May 27––Spring has sprung in Mammoth and while classic spring skiing can still be had on the Mountain, most minds have moved to bikes, golf clubs, fishing and hiking trails. The Mammoth real estate market experienced what has become the typical spring pop. The bulk of the sales have occurred in the low-end of the market, primarily condos under $400K. But there has been increased (from almost dead) activity in residential sales in the $700K to $1.8M range. In the mix were a significant number of cash purchases, increasing and frustrating lender delays, and new lending requirements (even for the most qualified buyers), and a stop and start foreclosure rate.

The banking and lending environment is beginning to resemble the late 80’s and early 90’s. Almost every agent in town (not me) is working on some sort of short sale deal. Absent of some real hardship on the seller’s part, lenders appear to still demand a buy-down or some real collateral from the seller to make the transaction work. On top of that the back taxes and common area fees (as well as any other liens or judgments) have to be resolved. Few short sellers are finding this appealing (they thought this was their easy way out). It’s all quite a poker game. And all of this is assuming that the bank has the real ability to attend to the file––it is quite apparent they are swamped and grossly understaffed. Ultimate success is a function of persistence and luck. Buyers are losing patience with the process and uncertainty, are concerned about the outlay of money, and they are realizing they may not be getting a great deal after all. Life’s too short (pun intended). After the recent death of a fellow broker/owner (and quite the competitor for the last 15 years) here in town, I’m going fishing. Meanwhile, the legal community is chiming in on the short sale arena, warning that advice from agents about the consequences (legal, tax, credit, etc.) for sellers is likely to be all wrong and also constitutes practicing law––just another reason for me to run and hide from all of this.

On the defaulted/foreclosing/REO side of the market, the majority of Trustee’s Sales are once again being postponed. Most postponements are for 30 days, then another 30 days. Some of these properties are in short sale escrows, some sellers are in bankruptcy, and it is apparent that some sales are delayed simply because the lender/servicer can’t get to the paperwork. Some of these properties have been sitting vacant or abandoned for over a year. All of this is feeding the growing conspiracy theory that banks are holding back on foreclosing and reselling with hopes that values get propped up. Oh, and the accountants are playing their games. There is a building shadow inventory of properties that will ultimately be foreclosed on, but their appearance on the open market isn’t likely for months or even years. However, when a property ultimately ends up as a REO, there are definitely buyers in this market.

After showing quite a bit of property this past holiday weekend, I’m seeing that the consumer who is watching the MLS online is getting a distorted view of the market, especially in the condominium market. There are numerous short sale listings where agents have arbitrarily lowered the asking prices into depths (trying to lure in any offer), and skew the reality of the market. The Mammoth Lakes Housing Authority is also dumping deed restricted housing units into the MLS. Many of these properties are newer and look great in the pictures and the prices are attractive. The only problem is the buyer has to be a certified buyer (local resident, employed, income (or lack thereof) requirements, etc). Just because you have a MVP doesn’t qualify you. The low-end of the home market is becoming similarly distorted. Anybody interested in a $400K A-frame short sale?

And some words about lending; agents who signed up for this job during the glory days of the credit bubble are now discovering reality. Most lending is back to Fannie Mae requirements and the pendulum has swung the other way. The problem isn’t the borrowers as much as it is the collateral. The underwriters are scrutinizing the condo projects every which way. If there is a red flag then more documentation is requested, or more down payment, or a co-signer. And agents are wise to forget the 30-day escrows that were so easy back then (unless its cash). Just so everybody doesn’t get unreasonable expectations, I’m advising a 60-day escrow closing or “sooner by mutual agreement.” Even the best properties (and borrowers) are subject to delay, the lenders on the loaning side are moving tentatively, but at least they’re still in business. (Hey, if the Feds were running your business it would be running slow too.)

Even though the market saw a nice spring pop, the inventory remains stagnant and relatively low. The market does expect the typical inventory increase over the coming months with a normal peak around Labor Day. But the inventory numbers aren’t signaling to sellers that they should expect any increase in values. The real buyers are looking for deals and are spending time educating themselves so they know-it-when-they-see-it. Again, the numbers are skewed with short sale offerings that are mostly an invitation into the Mammoth real estate abyss. Scrubbing the condo inventory reveals less than 300 units on the market. But a good 30+/- are Westin units and another couple dozen are short sales or deed restricted (affordable housing) units and another 20 or so are lingering developer inventory. There is a clear shortage of real quality properties under the $400K mark. The residential market is still stuck in the same place too with a few attractive properties coming under $700K. Quite frankly, the market is just much of the same with the standoff continuing between sellers and buyers with random motivated sellers (including REOs) or well-priced plums for the picking.

The Westin Monache continues to be an interesting case study. Recent sales have displayed some incredible value destruction in the past 18 months since the original sales occurred. One recent sale really jumps out at me. The developer reports the sale of unit #345 in the last two weeks. This is a premium unit in “the stack,” being a corner 2-bedrooom “suite” with a balcony and located at the end of the hallway. The unit closed for $540,000. The developer was asking $819,000. The original price was $1,025,000. Out of the original sales data from less than 18 months ago, the unit two floors up sold for $1,075,000, and the unit three floors up sold for $1,395,000. Amazing. Of course you could have had your money invested with Bernie Madoff. Another recent offering that stands is unit #741, a nice 1-bedroom on the top floor. It closed just 14 months ago at $775,000. The owner put it on the market a couple of weeks ago at $445,000, and it has gone to escrow. So if you have cash and desire a Westin Monache, now may be a good time to look. But I know there are some units in the foreclosure pipeline already and rumors are that there is a significant management personnel change coming and that the common area fees are going up in the next few months. I’m just beginning to wonder how long Westin will stay committed to the Monache project.

Forbes magazine from a couple weeks ago had an enlightening article titled Moreno’s Math. Arte Moreno bought the money losing California Angels in 2002 and changed the business model. His “putting butts in seats” philosophy included reducing ticket and concession prices and increasing total revenue and profits. He also believes in the old “management by walking around” theory. Moreno has almost tripled the value of the business (and he certainly doesn’t think like a hedge fund manager). While the new expensive Yankee Stadium seats are sitting empty, there’s a lesson to be learned here. Maybe someone at the Ski Area should read the article.

Meanwhile, those locals who were “asking to get their town back” in the last few years are getting what they asked for. The general and local economic conditions have moved out transient construction workers and many others. Businesses continue to fold or downsize to smaller spaces, fewer employees, or are re-thinking their entire business model. Many older businesses are re-adopting the old “Sun Valley attitude”––the practice of closing for good stretches of time in the spring and fall because it just doesn’t warrant opening if nobody is around, and the downtime is valuable for maintenance and vacations. As Rusty Gregory recently said, “Mammoth is a cool place to be in a recession.” And in many ways it is. The overwhelming level of mania the past ten years is gone and it is a great time to re-enjoy all the great things Mammoth has to offer. Even if all you can afford is a tent and Top Ramen.

So the questions for the next few month is how much good inventory will come to the market, how many REOs will eventually come to market, and how buyers will react (its all timing) to what appears to be looming inflation and higher interest rates.

Mammoth Affirmations––Mall or Mountains?

I'm a little overdue on posting this Q&A. The spring real estate pop actually happened but things are quiet now.

Q: I don’t have confidence in Mammoth’s current leadership to prepare for any likely scenario, and now they want to gain control of 203 from Caltrans even though they can’t meet current payroll without layoffs and employee concessions. And the developers are pushing a whole redevelopment plan of Main St., maybe this is a good topic for the Q&A. Paul?

A: I haven’t personally attended any of these meetings but I am watching. (I’ve grown weary of meetings that compromise my sanity.) There are two simultaneous concepts being moved forward for Hwy. 203 (aka Main St.) here in Mammoth. The first is for the Town to take over the snow removal operations (and maybe even more) that Caltrans currently performs. The second is a conceptual redevelopment plan for the Main St. area being spearheaded and pushed forward by MMSA CEO Rusty Gregory. Included in the plan is a gondola running up Main St. from the Old Mammoth Road intersection up to the Village. Now I’m not really sure how the two concepts are connected, but my guess would be it has to do with an easement for the gondola, and Caltrans sees the opportunity to dump the maintenance on the Town. That would be consistent with their history of “quid pro quo” in these matters.

Not everybody has been happy with the job Caltrans has performed on Main St. over the years. The piles of snow tend to hide some Main St. businesses. But nobody can say they’ve done a bad job either. And it’s a big job. The Town Public Works does a great job too, and with added equipment and personnel there is no doubt they could handle it. But who pays? Right now the State shoulders the cost. Can the Town take on this liability? Or can they get a subsidy? (And is the State’s guarantee of funding that comforting?) Modern life seems so full of great ideas minus the logistics to pay for them.

Meanwhile, Rusty has his redevelopment plan for Main St. and the entry to town. It includes relocating gas stations, building soccer fields at the entry to town, more housing for locals (“market rate” and “affordable”), a “feet first” retail district, an upscale hotel district, a condo hotel district, and of course, the gondola. All of this will create “huge stabilization of the local economy” (quote Rusty) as reported in the Mammoth Times. He is pushing for “expeditious approvals” and we better know what we want before “outside capital comes in.” Rusty was also quoted from his presentation that capital will return to Mammoth “faster than we think.” Now these Main St. presentations were last fall before the recent presentations about the Ski Area’s massive debt service concerns and the announcements of their “deed-in-lieu”(of foreclosure) of a $100 million worth of property back to the bank. I guess the capital didn’t come back quite fast enough. (But don’t be surprised when they craftily buy it all back at cents on the dollar at some point in the future.)

Ah, and would somebody nudge the needle on this skipping record?

First of all, let’s have a minor discussion about the entry to town. Thanks to several entities, it looks much better than it did 10 years ago. Those of us who live here seem to lose sight that our visitors drive through 300 miles of desert to get here. And then as they hit our town limits they enter a lovely forest of pines and firs. Talk about the proverbial “not seeing the forest for the trees.” And also, when you arrive the Sierra ridge looks close enough to touch (it still amazes me when I drive into town). Isn’t the forest and the mountains what people come here for? And is it so bad that the first thing is a Visitor’s Center? (We’re still promoting tourism, right?) What do we need to be, Dubai? Or was Barry offended when he pulled into town the first time?

Is this really the highest and best use of our (and our leaders’) time and energy to improve this town? And all in the name of “building community.” Once again, there is no community if the only people who can live here are trust funders and retirees. And has anybody run this by the Sierra Club? All of this sounds like an attempt to bring more people to Mammoth once again and the Club’s attorneys just love suing us for trying that. And didn’t we already lose a redevelopment lawsuit? And, just because I can’t help it, is this Main St. gondola going to resemble the QMC or the People Mover?

But are we really that gullible to keep enabling this? Many are asking if our Town Council is really going along with this? Wasn’t this is all the same rhetoric that moved the North Village forward in the early 90’s? Wasn’t Rusty the shepherd of the flock back then, the champion of the cause, one of the primary property owners in the district, the CEO in the company town and even a corporate officer for the developer that built the Village? Or maybe I’m just confused again? What’s that definition of insanity? Didn’t our mom’s teach us that we have to eat our vegetables before we can have desert? Main St. may be far from perfect but do we want the same dysfunction and incompletion executed there? I don’t.

Why can’t someone ask Rusty to finish (fix) what he started in the Village before moving on? Isn’t this the simple job of our Town Council? (I’m sure his “hands have been tied for many years” for a myriad of reasons.) The Mammoth Times article from last Dec. 4 quoted him as saying “We must pull together on what our ideas are in affirmation, instead of just reacting to what we don’t want.” Well, I hear plenty of affirmation that we don’t want any more development plans devised for carpetbagging hedge funds and guised as “stabilization of the local economy.” Wasn’t it Rusty, who only a few years ago, criticized Mammoth for being “addicted to the heroin of development”? Unfortunately for us, that’s probably the job our fearless leader has signed up for now. I’m seeing people in withdrawals every day. So more development plans are sure to cure the cravings and return the high. But who has the money to buy the dope?

Most people that I talk to are unaware that the Mountain still has substantial interest in the Village. It is what Intrawest use to refer as their “long term cash flow position” in the condo hotel developments. It’s often referred to as the “front desk”. Mammoth Hospitality (aka MMSA) has the management contract AND the reservation business in the Village. That means they’re paid to “manage” the common areas but also take 50% of every in-house booking in exchange for marketing and servicing the reservations (the individual owners get the other 50%). This is big business with substantial cash flow and minimal capital outlay. And their customers (owners and visitors alike) can’t be that happy with all the dysfunction. They’re paying to stay in a Village not an empty mall. (And by the way, from a real estate perspective, the (lack of) performance of the Village condo hotel properties has set the stage for the success of all future condo hotel developments in Mammoth, including the ultimate financing for buyers. Talk about shooting oneself in the foot.)

The Village really isn’t that flawed. The people who oversaw the execution of the plan just left out some of the critical elements--––plenty of accessible parking, a real special events venue (not just an open air plaza), a gondola that terminates at a skiable run before skiers are forced to get out, viable rents for the commercial tenants, etc. And Eldon Beck emphasized in the revised North Village plan that if the locals lose interest in going there on a regular basis that it would be a failure. (Can anybody guess who hired Beck?)

While we were spending so much time planning the North Village in the early 90’s, a glaring concern was how the Main St. and Old Mammoth Road corridors would have the life sucked out of them as the Village became so vibrant. It was recognized that these corridors would serve more as the “commercial service districts” in town. The vision was that the Village would be the high energy “fun zone” and Main St. and OMR would be where the hardware stores, gas stations, supermarkets, banks, and other commercial “service” enterprises would be. So now if we’re going to move the gas stations and plan for hotels (and condo hotels) and more retail on the Main St/entry area, what are we going to do with the Village? (Oh, I’m back to my old “capacity” argument again.)

So can we just have some affirmation that we should be utilizing what we already have, finishing what we started, and improving things within our financial means (massive debt is so passé), and get off the heroin. There’s an old axiom in business that if you take care of the back end of your business that the front end will take care of itself. We’ll see who else wants to learn that lesson.

Happy Mother’s Day. And don’t forget to eat your vegetables.

Mammoth Short Sales––Take It In The Shorts?

Real estate short sales are becoming all the rage in the Mammoth MLS inventory. And anybody who consistently reads here knows I’m skeptical about them in the Mammoth market for many reasons. But with an ever changing economic landscape, manipulations from Washington DC, and fluctuating bank policies, I’ve tried to keep an open mind and continue to do my own research on what to expect in the future. Furthermore, I don’t think many of my readers appreciate how relevant the Q&A’s and columns found here are to what is really happening in the market.

So while this column was largely researched and half written, I walked into a conversation yesterday at an open house between two very experienced Mammoth real estate agents. Both were disgusted. One was complaining about how her buyers want to see all these short sale listings because they appear to be such good buys, and how they were wasting her time. The other was complaining because his investor client was listing all of his investment properties as short sales but wouldn’t take the time to even look at some of the paperwork the bank will request in a short sale transaction. These agents were clearly verbalizing the many quandaries I have anticipated.

So back to the column. In some of my recent research I came across a very simple and concise (and almost brilliant) explanation of the problem. This comes from Patrick Schutte a RE/MAX Realtor who is very active in foreclosures and short sales in Prescott, AZ. He says, “While I used to shy away from short sales, now there are 10 questions that I ask the listing agent before my clients and I craft their offer.” This methodology is very astute, and displays his experience (and probably frustration) in dealing with short sales. These 10 questions give any potential buyer and/or their agent a real clue as to whether this is viable, or a complete waste of time. So let’s look at Mr. Schutte’s 10 questions (they’re in bold) and my comments (what makes them so important) follow. And then I have some questions to add that are more Mammoth specific. Hopefully, the sum total of this exercise gives buyers and sellers some enlightenment about short sales, especially here in Mammoth.

1. Who initiated the short sale? May seem like a harmless question but it is rather important. Mammoth’s inventory is filling with short sale offerings by agents that have no clue other than to follow the crowd or trend. They have no idea (yet experience) at what it takes to complete. So is it a knee-jerk reaction by the listing agent or the seller? OR has the seller/agent been talking to a specialist (not the receptionist) at the lender who requested that the property be listed as a short sale? Big difference.

2. Has the homeowner stopped making payments on the property? Historically, a lender won’t even consider a short sale unless the property is in default (i.e. late on payments). Many short sale offerings are not in default, the sellers are just trying to get out from under the property while preserving their credit. In most cases there is no true “hardship” other than the owner no longer wants this “investment.”

3. Has the bank received the seller’s short sale package including the hardship letter and have they approved the homeowner for a short sale in writing? Well, here’s where the rubber meets the road. The “short sale package” is an application to the bank to be approved for the short sale. For many Mammoth wannabe short sellers, this is going to be more detailed than the application they made to purchase or re-finance the property. This will include copies of tax returns, bank statements, credit reports (including the Mercedes lease), personal balance sheet (and extensive financial worksheet), etc. The hardship letter explains why they deserve to qualify for the short sale. The more assets the seller has the more likely the bank will dig and look for ability to pay.

4. How was the listing price arrived at (BPO, CMA), and has the bank approved it? Sorry, the bank isn’t going to let any buyer steal the property. There will be appraisal(s), Broker Price Opinions and other assorted evaluations. And in this market, while the short sale is in a protracted escrow period the value declines so the deal that was isn’t as good as the deal it is. That’s why buyers usually back out of the transaction at some point.

5. Are there any subordinate lien holders? Have all lien holders agreed to short sale? Here’s the critical modern day problem in Mammoth––there’s more than one loan. And while the holder of the first loan might be agreeable, the holder of the second loan isn’t (or even worse, it can’t be determined who even has the loan––remember, this was the era of slice-and-dice). And speaking of lien holders, the homeowners associations are holding liens on some of these properties and they want to get paid.

6. Is their Primary Mortgage Insurance (PMI) on the 1st mortgage? This isn’t so relevant to Mammoth, but if the property IS owner occupied (and thus having a much better chance of completing the short sale) then this could be a real issue. The lender may not care for the short sale because it may be in their best interest to foreclose and let the accountants jockey the numbers.

7. Have you received any other offers, and has a loss mitigator been assigned to the case? Now you’re getting down to brass tacks. If everything is in order so far and these questions have been answered properly (the listing agent has done their job!), now you’re getting down to an understanding of what the bank may accept as a price in a short sale. And whether the buyer is willing to be in the range. And you have a live-body decision-making human being looking at the file. I could write a whole column on this question. All of these people are so swamped (and probably disinterested) that this is serious consideration.

8. How long do you estimate the loss mitigator will take to respond to our offer? Now Mr. Schutte has to be respected for not messing around, and his website indicates he was a Marine, and in a short sale a buyer needs a good Marine on their side (storm the beach!). I don’t know how accurate the answer will be but it is worth asking. If you’ve got this far it shouldn’t be too long, “ah, next week, or next month, or next year.”

9. Has the loss mitigator ordered another BPO yet? When will they? More brass tacks. In this market it is normally an updated appraisal. (And I have news for you, real buyers aren’t paying “appraised” values in Mammoth, appraisals are typically 10-15% higher than what the today’s buyer is willing to pay––they’re typically educated and qualified!)

10. When is the scheduled trustee’s sale? Has the bank postponed it in writing?
We were just assigned a foreclosure/REO and the prior owners were “shocked” they had been foreclosed on. They said they had talked to the bank the day before and the bank was “working with them.” The property had been listed and everyone was clueless that the bank was going to pull the plug. Right now the pipeline shows there are a dozen or so short sale listings with looming Trustee’s Sales. Some have been in escrow already and have fallen out. Some Trustee’s Sales have been delayed pending potential short sales. But the odds are some (or most) of the “work” hasn’t been accomplished. (Sooner or later we’ll be leaving the jettisoned world of short sales/foreclosures/REOs and government intervention.)

Here’s a question that is more Mammoth specific:
Is the seller prepared to put cash or promissory notes into the short sale transaction to make it happen? Well, that’s what any seller that can’t prove hardship is typically being asked to do. You see, most of Mammoth’s short sellers aren’t hardship cases (as their financial worksheet/credit report will prove), so the bank scrutinizes their financial position and wants them to pony up something of value to make up for the forgiveness. This is when the seller gets to decide if it is worth it or not. This is why the exercise of asking the 10 questions is so valuable for any potential buyer. The lender will create pain for the non-hardship seller and many of these sellers don’t want the financial (or emotional) pain or compromise. Most are just looking for an easy way out of the mess (and their agents gladly enable them).

There are other concerns about short sales in Mammoth, but I’ve run on too long. Buyers will have to pay cash outside of the escrow for any furnishings. But that may not be a big deal. One local agent that has numerous short sale listings told me (to my face) that he doesn’t do anything except put the listings into the MLS. He said, “I tell my sellers they have to do all the short sale related work.” That should give you a high level of confidence on top of everything else we’ve discussed here.

Mr. Schutte’s 10 questions are extremely valuable to any buyer pursuing a short sale purchase. I highly suggest any buyer doing so to ask their agent to pursue them before writing any offer. For listing agents, the sellers should be prepared to answer them (and do the work first). Having the answers will save lots of time. And after all, time is the most precious commodity we all have.

Broker’s Report, March 27, Bailouts, Dropouts and Wipeouts

Broker’s Report, March 27––Currently, the most important real estate news in Mammoth is the re-opening of the Mammoth Value Pass (MVP) membership. Yes, those who don’t belong to the pre-bought discounted season pass program have now been offered a chance to join––you just have to come up with $576. And forget all the mamby-pamby stuff from previous members who thought it was “exclusive”, or that in this economy the Ski Area should have discounted the price from last year. There are a multitude of things swirling around this. Let’s take a look.

First, owning a season pass at Mammoth is about as good as it gets. My last “real” one cost $1140. I remember sitting around the locker room in the Main Lodge in 80’s and a fellow season pass holder (he’s still around––plays his guitar in bars) made the statement that having a pass and being able to ski so much was “the great equalizer.” You see, back then the economy here in Mammoth sucked, and everybody had several jobs––each season. But what “equalized” it was being able to blow out a few hours of skiing (it was more time back then, the lifts were slower and we were younger). So now that we’re in the Great Recession, this is the chance for many to alleviate their depression over not being able to ski at the “glamorous” resorts with a pass at Mammoth. And one of the best things a local resident can own (or anyone else for that matter) is a season pass. It is a great benefit to living here. But many newer (less than ten years) and valuable local residents don’t have a pass because of the cost and they aren’t MVPs. But now they have their chance. It will make sticking around a whole new experience.

But this is a real estate blog. Okay, I’m already seeing potential buyers picking up on the concept that was so profound ten years ago: if the family has passes, we need a crash-pad. The cost/benefit analysis for so many people just makes sense. The current economy will certainly curtail the rush but once they have their receipt and reality in hand they will be thinking about where their going to be sleeping while they quest for “dozens of days” and fresh powder––even if it just a seasonal rental. Re-opening the MVP creates demand for real estate and it increases the flow of cash around town from happy hours to hot waxes.

And in the grander scheme, the projected 38,000 passes multiplied by $576 equals the reported new annual debt service on the Mountain. Probably just in time if you think about when the Starwood deal closed in 2006. I’ve even had people ask me: what if they buy a pass and the Mountain doesn’t make their payment and they don’t open next year? Well, I think Mother Nature is a bigger concern, it’s always a gamble, but at least the bank would have the sense to keep the lifts turning. Heck, the bank might be running it now for all we know. I’d be more concerned about Washington DC collateralizing the Sierra Nevada to the Chinese, and then what? The Sierra Club’s legal team may not be that good. The MVP is on sale in April until they sell 38,000––like they would turn away an extra few thousand cash-in-hand buyers. The only downside: it might make Saturdays crowded again.

The Town fathers seem to be getting understanding too––nobody can continue to operate like a hedge fund manager addicted to finance and leverage (and grants and developer dollars). While everybody was arrogantly spending years arguing over PAOT (persons at one time), now sustainable cash flow is once again becoming an accepted concept. I’ve tried to come up with the new acronym, but envisioning a limit to PAOT is now Just Get Lots of Persons (with disposable cash) Here Now. The Town continues to toil over (and is beginning to panic over) what to do with illegal home rentals (run wild). TOT (bed tax) evasion is at a critical point. The Town has finally awakened to what the local real estate industry has known for a decade––the Internet radically changes the way business is done. It seems inevitable that the transient renting of single-family homes will become legal, or tolerated, and maybe even welcomed, as long as the owner pays the bed tax. And with some homes generating a purported six-figure annual income, and the obvious demand by the consumer, and the support industry now established, the future of the single-family home market may be changing forever.

Meanwhile, last week’s The Sheet reported that during budget discussions that Councilman McCarroll (who happens to be an attorney) stated that the “Town’s litigation expenses are expected to soar” in relation to the Hot Creek/Airport lawsuit. The Sheet didn’t connect dots, but that says to me that the Appeals Court intends to hear the case. And the sister case is yet to be heard against Mammoth Mountain. This is all going to get even more interesting (who needs TV or novels with this entertainment?). But regular air service is working. More flights are proposed for next winter including a flight from San Jose. Now, I wonder if the Ski Area is advertising MVPs in the Silicon Valley––it’s a quick flight and every software engineer I’ve ever met loves skiing at Mammoth. Just this week I was down at the airport when the Horizon flight came in. The impression I was left with is how close the airport is to town. This new accessibility will become increasingly attractive.

Getting more real estate specific, I have recently experienced the public’s confusion over the term “foreclosure.” Consumers are obviously out there reading, and I think the confusion is coming mainly from articles written by general newspaper writers (LA Times?). When we represent lenders on foreclosed properties, they are referred to by the industry as REOs or real estate owned by the lender (and they want to get rid of it). For the general public we have found that referring to the properties as “bank owned” or “lender owned” clarifies this. These are foreclosures, but more technically post-foreclosure. But many articles are referring to “buying foreclosures” as attempting to buy properties at the trustee’s sale (sometimes referred to as the auction) where the lender is actually foreclosing on the property but giving the public the option to out-bid them. Buying a property at the trustee’s sale can have many (dangerous) unknowns: there can be all sorts of liens, title defects, no post-sale inspection rights/due diligence, etc.. Plus the buyer needs cash. Conversely, attempting to purchase a REO or lender owned property gives the buyer the right to inspections, title review, financing, etc., just like a normal transaction. There is a big difference.

Speaking of REOs, we have just worked through the inventory of foreclosed (and lender owned) units in the Village. Right now I don’t see any more in the foreclosure pipeline, which is an 8-12 month lead. There is one tied up in a bankruptcy. But this is significant and something worth noting in the market. These REO sales have been major discounts (some up to 60%) from the peak values. But at these prices there are motivated buyers (yes, I said motivated buyers). Now there aren’t any more at these prices. Some motivated sellers who actually have equity may now show up at some slight price increases. Will there be buyers? Or will the lack of summer rental revenue force more into the foreclosure pipeline? Right now this situation has stabilized. But go across the street to the Westin Monache––no foreclosures yet, but plenty of inventory and stress. A great place to visit, but…The REOs continue in the older condo projects and some single-family homes are in the pipeline.

Lending on Mammoth real estate remains a moving target and the government is steering the ship into calmer waters. Qualified buyers are closing transactions and getting good rates. Jumbo loan rates are easing. Fannie Mae is tightening on condo projects that have ostensible “front desks” and other “risky” red flags that are increasing down payment requirements and closing costs to the borrower. (They are even proposing to review the FICO scores of all the other owners in a project!) Potential buyers should talk to a competent mortgage banker/loan officer before making an offer. Rates are low and maybe going lower…. And if you ever wanted to build your own home now is a great time––there are inexpensive lots, Town fees have been slashed until next summer, and there are plenty of hungry contractors who need gas money for their water ski boats… As far as new developments, little if anything will be built for years. We’re in an era of inventory absorption and al developers need values to rise to have any profit margin. But I’m seeing a good deal of pent-up yet patient demand… Many agents are taking short sale listings without really understanding what they are facing, especially in this market. Those short sale list prices are artificially (and arbitrarily) low and skewing the MLS inventory. If you are watching the inventory online, look at the details to see if the property is short sale pricing. In the last week I have seen two protracted short sale escrows cancel because a better deal with a real seller (usually a lender) came to the market.

In the past few years I’ve taken heat from my peers for being bearish or even doom and gloom (ironically, many of them are facing, or have, moved out of town, left the business, or hired BK attorneys). So last week I was reading Warren Buffet’s annual letter to the Berkshire Hathaway shareholders, he made a simple statement, “When investing, pessimism is your friend, euphoria the enemy.” My sentiments exactly. The euphoria days are over but there are still plenty of reasons to want to own a piece of Mammoth. There is still demand in the market and we’ll see how it reacts, but in the meantime take Warrens’s advice, stick with your friends.

"It Will Be Amazing"

This Real Estate Q&A was scheduled to run in this week's The Sheet, but I guess they didn't need the filler. I'm working on new Broker's Report so I thought I better post this--don't want to overwhelm my readers with thought provoking material.

“It Will Be Amazing”

Q: We have been second homeowners in Mammoth for the past 16 years. We bought before Intrawest came on the seen and we watched all the fanfare and hoopla when they arrived and started developing, but they appeared to lose real interest in Mammoth over time. How come?

A: Without transparency, which seems increasingly difficult in everything these days, it is really hard to know for sure. The exact reason(s) may be known to only a few insiders and I’m sure they’re not talking. But maybe a review of some of the circumstances can give us insight.

Intrawest’s marketing machines went to work shortly after their arrival here in Mammoth in early 1996. The first grab at everyone’s emotions (“selling is the transfer of enthusiasm”) was a 13-minute video used to introduce “Project Sierra.” They played the video over and over again at their sales office dubbed the Discovery Center and included copies (pre-DVD) in marketing packages sent to potential buyers. The video was titled “On the Shoulders of Giants” and put Dave McCoy on a pedestal with John Muir and Ansel Adams and made them the pioneering visionaries for how Intrawest would transform Mammoth. “It will be amazing, amazing, amazing…on the shoulders of giants” is how the video concludes.

Intrawest executives came to town and made comments like, “the best ski mountain in the United States” and “the greatest opportunity in mountain resort development” and the media spoke to “the biggest resort makeover in the history of skiing” and “the $1 billion facelift” and on and on. And we all believed it to be true. After all, these were the biggest and most successful resort developers in the world. And we believed Mammoth was worthy.

But things got sideways shortly after the ball got rolling. The first wrench in the works was the wrangling, and ultimately the protracted litigation, over the airport. Today we see that the airport and daily air service can work. Imagine if we were a good six to eight years into the program. My bet is that our local economy would be significantly different. We wouldn’t be “addicted to the heroin of development.” The other wrench was losing the opportunity to do a redevelopment district in North Village. That was more litigation and delay. Ironically, Andrea Lawrence was quoted in the Nov. 2001 issue of SKI magazine that the redevelopment plan “would have bankrupted the rest of Mono County within 20 years”, and today’s news is that the (relatively) financially healthy County is looking at ways to assist the financially strapped Town.

And ten years ago last month, Mountain Sports and Living magazine (now defunct) reported on the redevelopment controversy in a story titled “Intra-Town Squabble.” Then Town Council member Kathy Cage was quoted, “We were not able to attract Intrawest here without the promise of redevelopment…if we hadn’t done it, we would be sitting in the same financial and economic spot we were in five years ago.” Ironically again, those of us that remember the “financial and economic spot” we were in during the early 90’s are seeing many similarities to now.

Beyond the troubles with the airport and redevelopment, there were other problems. I remember the day I went to lunch with one of my former associates who was the sales manager for Intrawest. He had just come from an important meeting with “corporate” and they were cutting sales budgets and commissions because the development costs here in Mammoth had become so high. (Anybody who has ever built anything here knows this to be true.) Intrawest had apparently watched their profit margins squeezed hard by building in this altitude, with the snow load and engineering requirements, and California and Mammoth regulations. They told their sales staff that it was not like anything they had experienced in any other resort.

One thing I’ve thought plenty about, because I’m such a believer in Mammoth, was how Intrawest viewed Mammoth as real competition to their trophy Whistler/Blackcomb. Face it, Mammoth as envisioned with a functioning airport right here (better access) and quality service levels and exciting amenities would be real competition. When we recruited Mike Vance from Whistler to be our Planning Director we knew that the climate was an issue. (When I had met him years earlier he told me, “What Mammoth has Whistler will never have––the sun.”) Maybe they came to realize that if Mammoth became “amazing” the customer would like it better. And understanding that destination skier/snowboarder numbers are relatively finite, this alone could be enough to make them ditch Project Sierra.

And there is another, more real estate and development specific topic to discuss. The original boys at Intrawest proved to have uncanny vision, foresight, and timing (just look at the timing and valuation of their sale to Fortress Investment Group). Two of their BIG (and most profitable) business models, the condo hotel and the resort “Club”, have taken serious beatings in the global marketplace in the past couple of years. These models are unlikely to see any real resurgence for many years to come. Did they anticipate that? One would think so based on their actions. Again, proving uncanny foresight and timing. And that would be another reason to lose interest (especially with a buyer knocking on the door).

And something unresolved in my mind, I think Intrawest lost respect for Mammoth after negotiating a very sweet development agreement with the Town in the Village. Those “in the know” still believe we left so much money on the table that it was obscene. They may have looked at us as being so unsophisticated in this realm that we were theirs for the taking: do a “good enough” job while grinding out profits, commit as little to the community as possible, and sell out of the deal at a high price when the timing was right. Unfortunately, it’s all water under the bridge. Responsibility doesn’t seem to matter any more.

So here we are. The brilliant minds that built and drove Intrawest are gone (and probably toasting to us all the time). The remaining Intrawest ownership under Fortress is an uninterested fraction of the Ski Area, unsold units at the Westin and Woodwinds (although the bank probably really owns them), the un-transparent and disinterested ownership of the Village commercial through CNL, and the Rodeo grounds in June Lake (now basically worthless?). I’m sure I’m missing something, but it’s all like a small scrap in a forgotten doggy bag after the best meal of your life.

So why did they lose interest in standing on the shoulders of giants? I’m sure it had to do with money and likely one (or more) of the aforementioned conditions. Or maybe they simply didn’t like us Californians hanging out in the sunshine. Meanwhile, we’ll just have to remain content and inspired while playing in the shadows of giants.

Mammoth Foreclosures 4.0––Walk-Aways and Weasels

This column has been delayed several times by work duties, showing property, great ski conditions, and my ongoing attempt to understand how the Stimulus and Housing Bills and foreclosure intervention by the government will ultimately affect the Mammoth real estate market. My summation at present: the artificial delay of many foreclosures that began early last fall will now only further postpone the inevitable and will prolong and flatten the downward slide of real estate values. Many can argue the virtue in these actions, but I’m more of the Tea Party mindset. But all these delays are much to the chagrin of many would-be buyers in the local market who are regularly scrutinizing the inventory online and are trying to somewhat time the bottom and who are getting impatient because they want to “set themselves up” before they’re too old. Maybe the Ski Area can bring back the senior citizen pass especially for them.

Very little of the Washington salvation packages directly apply to Mammoth. We have a small percentage of owner-occupied properties. Conforming loan limits eliminate another large percentage. And those owner-occupied locals that are in trouble can’t qualify for much because they already have late payments and few, if any, can meet the “affordable” criteria (that is unless they already live in “affordable” housing). Even the Ski Area appears to be having they’re own stimulus epiphany (like every other local resident, at least those not lost in denial, has been experiencing for at least the past year.) The revelation is that survival now means discounting EVERYTHING, getting volume up, cutting costs, and becoming more humble and proficient at what you do. The good news: air service is working and we’ll have water this summer.

Despite the government intervention efforts, Mammoth foreclosures continue at a slow but steady pace. My projection is that we’ll be at a similar pace for 2009 as we were in 2008, or maybe a little more. (One reader suggests that based today’s economic environment that I shouldn’t predict things beyond a few months, but I’m trying to plan fishing trips.) There is no flood of distressed property in the pipeline, no alarming concentrations of stress, and no apparent rush to exits (but that is one of the underlying rationales for the intervention.) But the foreclosures will continue to set the pace for prices in the market. So far they are driving prices down, but they are also finding the levels where there are ready, willing and able buyers. Price support is a good thing and we are clearly seeing it in the low-end of the market. (The foreclosures we are handling in the Bishop area are definitely finding solid price support.)

However, I see an insidious hidden indicator in the Mammoth MLS and it is growing. They are called short sale listings, and every agent in town (not me) seems to be taking them on. Regular readers know how I feel about short sales in this market. (My office did recently complete a short sale, but it met the two most important criteria: an owner occupied property and provable hardship.) The volume of new short sale listings could be telling, or maybe not. Stressed owners are thinking it could be the easy way out instead of foreclosure or enduring the pain. “Short sale experts” are popping up all over the place (don’t pre-pay any fees!!) Increasingly desperate (and inexperienced) agents are taking them on not knowing the work and uncertainty involved. The process can take many months and while it is going on an REO (or other real seller) can pop up and make the short sale deal not look so appealing to the buyer (now happening with frequency). And banks are now playing new games with non-hardship short sellers like demanding cash, or cash from credit card cash advance lines, or going after anything of value the seller has before finalizing the transaction. (The short seller is going to have to expose their full financial picture to qualify for the short sale—no more “stated income” shenanigans.) Further, the “bank” may just be servicing the loan for an investor (a non-portfolio loan) and the investor may be distracted or not care for a short sale. But I digress.

The REAL issue is how many of these proliferating short sale MLS offerings are future foreclosures. The trend is already clear. Many short sale listings end up as foreclosures. Savvy buyers are beginning to see and understand this trend. But again, the real issue is how many of these new and growing short sale listings will end up as foreclosures. Although there has been some signal from the lenders that they have some appetite for short sales, I see no indication they are moving strongly in this direction. (Part of it is they are overwhelmed.) Which brings me to the title of this column––Walk-Aways and Weasels. That seems to summarize the attitudes I’m observing of these distressed sellers. They seem to fit into one of these two categories. Many of these new aspiring short sellers would like to be Walk-Aways but they don’t want to destroy their credit. But many don’t want to put forth the effort (and disclosure) to facilitate the short sale. Or they don’t want to put anything in (like cash) to make it happen. They want their cake and eat it too.

In the Mammoth foreclosure market there have already been many true Walk-Aways. They rolled the dice and lost. They’re not asking the casino for their money back. They’re not whining about being victims. They politely walk away with their dignity (or the appearance thereof). They don’t rob the property. And some of the owners who might even qualify for a short sale don’t even try. We were recently assigned a new REO listing in the Village and you never know what you’re going to find when you walk in the door the first time. So there it was: clean, everything in order outside of a little wear and tear, almost like you would find it if you were a paying guest, except a bit dusty. When we went to put the electricity on we discovered that the service had been off for a year. The owner knew it was over a long time ago and didn’t abuse it, didn’t even use it, didn’t rent it, nothing. Just used their last freebie buffet coupon and left quietly.

On the other hand are the Weasels. Here’s the opposite experience––one foreclosed Village owner was still renting (and taking money from renters) a month after he had been foreclosed on. (There’s a nice resort experience for one of our visitors, “ah, well sir, the unit you rented was foreclosed on a month ago and the bank isn’t renting it out and you’ll have to get your money back from the previous owner, but we have some similar units available at $$$ a night.”) While the Walk-Aways are pretty easy to deal with, the Weasels are always something else, and sometimes disgusting and entertaining as well. The banks have a way to keep the Weasels at bay for the most part, it’s called “cash–for-keys.” It’s right out of the old landlord’s handbook––paying undesirable tenants to leave, leave the place in good shape, and sign their rights away. Foreclosed on owners, or their tenants, can get a check for being nice Walk-Aways.

And then there’s the weaseliest of the Weasels, and I just can’t help telling you about him because if you met him you just might think he’s a nice guy. But he is a small but prime example of why we are in this global economic pickle today that will cost us for decades to come. I refer to him as Bugs Bunny. See Bugs was a “real estate investor” and he always let you know it. He was a client of one of my former associates. We have subsequently ended up handling a property he was foreclosed on. As all the paperwork flows through my office, the financial damage he created becomes apparent. He bought a small 70’s built condo about 10 years ago. By 2007 he was able to put about $250,000 in his pocket via cash-out refinances. Shortly after putting the biggest loan possible on the property he stopped making payments to everybody––the bank, the Homeowner’s Association that was in the midst of a major (and costly) renovation project, the County (the State), and God only knows who else (little guys often get stiffed by these people). All the while he kept renting the property and generating revenue. Ultimately he gets foreclosed on. So now the bank pays him to remove his personal items and legally abandon the property. Today, we have the property in escrow and my calculations are the bank will lose about another $250,000 by the time they pay off the HOA liens, the taxes and other expenses to liquidate the property. So one little condo puts a $250k in cash in his pocket and the bank will realize about $500K in total loss. Oh, and this bank got bailout money from the Feds.

And if that doesn’t put Bugs the Weasel on my poop list, he starts claiming (after he gets his move-out check and signs away his rights) that a couple of Home Depot light fixtures (that were attached to the property) have “sentimental value” and we “stole” them from him. He thinks this is so important that it warrants regular, whiny voice mail messages. Then he tells me that he wants to “pick them up while he’s up in Mammoth skiing next weekend” and that if I don’t he’s going to file a police report. He was “greatly offended” when I called him a Weasel.

Man, this is a great country. And we wonder why we’re in such deep doo doo.

Dream Another Dream, This Dream Is Over.

This Real Estate Q&A appears in the weekend's The Sheet here in Mammoth. This is the unedited version. In case you want to read the letter it is posted here. More new snow this weekend!!

Q: We liked Warren Harrell’s letter in The Sheet this (last) week about Mammoth’s need for boutique hotels. We like your take on things, so what do you think of his ideas?

A: First, I don’t know Mr. Harrell and we’ve never discussed this topic. Reading his letter reminded me of former M.L. Planning Commissioner Helen Thompson’s favorite rant “we just don’t have a giant eraser to use here in Mammoth.” Although we have erased quite a bit since her time, we’ve created new messes. The concept of a series of boutique hotels to infill the remainder of North Village, Lodestar (Sierra Star), Snowcreek, etc., is a wonderful idea. But unfortunately, it is (with all due respect) a utopian idea that, in the absence of radical and unlikely change, will remain utopian for a least a couple of decades, if not longer.

Mr. Harrell’s letter highlights many of the development conundrums Mammoth now faces. The most critical factor is financing--––all levels of financing. And we are at the turning point from an era of the most liberal lending to what may become the era of the most difficult lending. Even worse, tourism related commercial hotel and condo hotel financing is now considered the riskiest of the risky. (And even if the Clearwater developers can in fact finance their own construction, are they prepared to finance the individual buyers too––and probably at a net loss?)

For those of you who weren’t around, the evolution of the condo hotel properties as we know them here in Mammoth came about for a specific reason. Financing for true, single-owner hotels is non-existent for a seasonal tourist market with marginal proven and projected occupancy rates. Intrawest perfected the development and financing model to solve that problem––put a kitchen in the hotel rooms and sell them as condos and dish the financial risk to someone else (the individual condo owners and their lenders). The development model also projected keeping the “front desk” and “ground floor commercial” as “long-term cash flow positions.” Here in Mammoth, Intrawest recently got stuck with approximately 75 unsold units at the Westin Monache when the music stopped. And they “sliced and diced” the front desk operations and ground floor commercial off to inexperienced and inept operators. Such is where we are in 2009.

Right now the mortgage bankers and companies are experiencing increasing difficulty in financing the condo hotel purchases. Many of the speculative buyers are heading to foreclosure or slashing prices (even willing to take big loses). Marginal rental revenue has been exacerbated by the general economy. And operating expenses are up (or were they just under-budgeted from the start?). The lenders are considering these properties more risky all the time. Having a “flag” like Westin or Ritz is now a red flag to the underwriters and institutional investors that THIS IS A HOTEL––meaning even riskier. And I don’t think this sector of the market is high on President Obama’s list of immediate problems––no likely bailouts here. Another quandary; in Mammoth we may already be overbuilt on this product. (I’ve been arguing this “capacity” issue for years and many consider me ignorant––Paul, build it and they will come.) Much of worldwide condo hotel product may be destined to be the Chevy Vega of real estate.

So build boutique hotels! Mr. Harrell’s disciples can do it one of three ways; single-owner-operator, condo hotel it, or do fractional/timeshare. Here in Mammoth, the last two choices have been crushed in value, real demand, and now by the lack of (reasonable) available financing. The developers themselves are upside down or bankrupt. So the answer is single-owner-operator.

But ask yourself this; why won’t Trader Joes’s, Outback Steakhouse, Papa Johns, In-N-Out, and many other successful operators come to Mammoth? They’re smart. They know that demographics and traffic counts are crucial for success. The tourism/hotel equivalent is occupancy rates. Projected and proven occupancy rates below 75 to 85% equates to no commercial financing. I don’t care how “cool” any boutique hotel in Mammoth could be, it won’t meet that criteria. When Intrawest first came to Mammoth (circa 1996) they bragged about 45-55% occupancy rates in condo hotel units in places like Whistler. I don’t think Mammoth is anywhere near that. But then again maybe Mr. Harrell and the Tourism Commission can organize a blue-ribbon committee to find 12 to 15 entities that would like to invest $20-60 million each (AND get beat up by the Town) for the opportunity to lose money. Then, and only then, can Mammoth get these boutique hotels. (The land value for these projects going to zero may help.)

At the turn of the century my brokerage represented a man who had Mammoth roots but had moved away to develop a very successful chain of boutique hotels up and down the Pacific coast. He acquired a property here in Mammoth on Minaret Road where the Stonegate townhomes now stand––all within the North Village plan and fronting on a Sierra Star fairway. He designed a 60-unit hotel (with 12 employee housing units incorporated under roof) for the site. It was the type of property that Mr. Harrell envisions for Mammoth and the North Village Specific Plan already allowed for it. But the plans were scrapped and the property sold. There were explanations as to why, but the most likely reason was that this very experienced and successful boutique hotel owner-operator did his homework, and the local occupancy rates couldn’t support the cost of the project. His lender probably told him to build elsewhere (like the coast in Orange County or Monterey).

In the meantime, maybe we’ll see a renaissance for Mammoth’s classic and funky lodges, places that will be popular again because they’re cheap and pet friendly (just what everyone needs in a depression). Places like the Cinnamon Bear Inn, The Edelweiss Lodge, The Innsbruck, The Pine Cliff Resort and the Austria Hof. The funny thing is, most of those places are paid for or carry little debt. That is destined to be trendy.

I do have a problem with Mr. Harrell’s last paragraph. He states, ”Condos provide little or no long term income to the Town (in the form of bed tax)”. Does he have facts to back that statement up? Maybe he needs to review the TOT receipts at the Town offices. I’m out in the proverbial condominium field everyday, I’m in the busy reservation company offices (both on-site and off-site) and in units worn from years of rental and producing TOT. Not only do they produce a great volume of TOT, the condominiums also employ scores of people and are major supporters of many local businesses. And guess what? In the leaner economies of the 80’s and 90’s these condominium management positions were cherished for the stability of a regular paycheck and a roof over one’s head.

And let’s look at something else about all these condos that “provide little.” The average $600,000 condo, which maybe only 30-40% (my guess) produce TOT, actually produces approximately $7,000 in property tax. That same condo might, in a good year, produce $2 to 3,000 in TOT. And yes, the property tax might not go directly to the Town, but it pays for many things the people of this town rely on. Some of us haven’t forgot (not so long ago) when the County was so broke they struggled to pay for essentials like paramedic services. Now that was insanity, Mr. Harrell.

My conclusion; the beer at the Wellness Hotel in Bavaria must be pretty strong and almost hallucinatory. Maybe even more so than Mammoth Brewing’s Hair of the Bear!

A Primer: How Not To Become a New Second-Homeowner

A Primer: How Not To Become a New Second-Homeowner

This little story is fiction, but if my readers want to believe it is true, so be it.

One of my life lessons (and God knows I need them) is that there are two sides to every story, and many times three or four. Having been a public official, one who has had to make decisions, has helped me learn. Formal mediation training that ultimately got applied to more than a couple decades of everyday real estate business has helped too. But like most people I still catch myself not getting both sides of the story (who has the time sometimes?). So onto the story.

This last week I was dragged into a small conflict by a brand new second-homeowner in Mammoth. I’ve seen this pattern of behavior before. My company wasn’t involved in his purchase at all (thank you). But before Mr. New Mammoth Homeowner (NMH) closed on his transaction, he did rent a property my company had listed for sale. He had struck a nightly rental deal directly with the owner for the holidays. Things didn’t work out perfectly and a dispute arose over a refund of several hundred dollars. Ultimately, both parties had their point of view and the owner (our client) refused to refund the money. Lacking satisfaction, soon-to-be NMH decided to find blame somewhere else, which in this case was the agent in my office who had the listing, and me the broker.

Soon enough came demands from NMH for payment from us as well as accusations of wrongdoing. And you guessed it, Mr. NMH is an attorney and he certainly lets you know it. But the agent said no to his demands. And that’s where I get dragged into it. Now he wants me to write the check and insists upon its immediate “delivery”--––first via mail to his home, then his office, and then to his new home here in Mammoth. Now I didn’t go to law school, but he (the plaintiff?) seems to think he gets to play judge and jury too, and of course he’s already proven himself right, damaged, and has awarded himself a judgment. He even tells me I’m “stupid” because I can’t see clearly why I need to write him a check immediately. But then he starts telling me all the other things he’s going to do if I don’t get to cutting this check muy pronto--––he's going to sue me, the agent, and the owner, he’s also going to file complaints with the Department of Real Estate and the local Board (yawn), and he’s going to put ads in the local paper telling the world how incompetent I am. Furthermore, (and this one really hurts), he’s not going to refer me to “all of his friends that are planning to buy in Mammoth.”

A little research reveals to me that NMH bought (closed) one of those homes that I warn all of you about. But of course, that is just my incompetence and inexperience shining through. And well, sometimes I just can’t help myself when people threaten me. So I email NMH about his purchase (after all he’s the one who started emailing me with his demands and legal positions). He gets very defensive about his purchase, and clearly, he’s brilliant in his mind and has made a cunning purchase. But letting him second guess himself after spending a million bucks is always fun. And then I forget about him for a day or two. Then I get another demand via email––he expects a check from me at his house when he arrives in Mammoth or else he’s going to stop in Independence on his way up and get the lawsuit going. (He doesn’t even know what county his new acquisition is in.) Well, like I said, I just can’t help my self, and now I really have something to get off my chest. So I email him, “People (like you) that come into a small community and threaten, and attempt to extort long time residents over petty and frivolous matters typically end up having BIG problems. Maybe you should consider installing a video surveillance system inside, outside, and all around your new home.”

I know I’m stupid. I’m trying to make this guy have sleepless nights when in fact he probably doesn’t sleep anyway. But here’s the message I’m trying to send him (and I’ve seen this movie before); if he thinks he’s going to come into this town and start using his fast tongue and his knowledge of the law to intimidate and grind people AND own a second home here, he should think again. I’m basically trying to let him know that the people of Mammoth aren’t going to be the patsies at his poker table. But no, he immediately calls me to tell me he is calling the police because I’ve “thrown bricks through his windows” already. Oh, dear Lord.

So here’s the skinny. If you own a second home, Guess what?, you’re not there all the time. (In NMH’s case he is 400 miles away.) You are going to rely on lots of strangers providing service to your home, especially if you’re the “high maintenance” type. And if you grind, threaten, accuse (and you talk like an attorney on steroids), you’re not likely to get very good service, if at all. Word travels fast in a small town.

I can see his snow removal operator being asked to repair the scratches in his driveway, the spa service being sued for hospital bills because they put too much chemical in his spa, the housekeepers will be accused of stealing everything (lock up the scotch!), and God knows the new carpet won’t be laid “perfectly.” The multitude of future servicemen that are likely––appliances, heating, cable, telephone, windows, garage door, and on and on are all destined for accusation and intimidation. Just ask me. I’ll even wager he (or his wife) will need a tow truck to pull them out of a snowbank sooner than later and that poor driver will be blamed for the dents. So, the more I think about it, I really wouldn’t recommend anybody do any service in his house until he does in fact install that video surveillance––you’ll need the proof you didn’t do anything wrong. Don’t ever blame me for not warning you.

I did recommend that to NMH that all of this belonged in Small Claims Court. But because he thinks I’m so ignorant, he impressed upon me that I better personally call my company’s client about the dispute, and then I would see how right he was and why his check should be at the house upon his arrival. So I followed through. (We have sold and closed this client’s home in the last three weeks––there is real estate selling in Mammoth, and that is not fiction.) Our client’s story to me was exactly how it was presented to me originally by his agent (in writing). Somehow, after hearing his side of the story, directly from him, I got a good idea of where the problem might lay. But he told me to “just ignore him” (NMH). All real estate agents need to learn to follow the instructions of their clients. So look in future issues of the local papers for some scathing comments about me, the ignoramus. But then again, he’ll have to identify himself if he does. And if he does sue, well that’s public information too. I’m sure I’ll be following up. Maybe I’ll post some photos of his surveillance cameras on the outside of his house.

So congratulations Mr. New Mammoth Homeowner on your acquisition here in Mammoth. Hopefully it all works out for you and provides you and your family years of enjoyment. But do us all a favor, leave your job stress and hubris somewhere in the desert, preferably buried deeply in the sand. And I’ll try to remember what my mom says about giving advice; wise men don’t need it, and fools won’t heed it.

Return of The Crashpads

Broker’s Report Jan. 11––Almost 10 years ago Mammoth Mountain announced a new pre-purchased (in spring for the following winter) and discounted season pass which became known as the MVP (Mammoth Value Pass). The program has been a major success. For previous season pass holders it represented a really substantial discount. But for the other 30,000-plus original purchasers, it made Mammoth their own affordable home ski area. It also drove strong demand in several segments of the local real estate market. Back then I dubbed those property segments as “crashpads.”

Real estate values were still quite affordable in the year 2000. For the 10’s of thousand of new season-pass holders the natural progression was to secure a place to stay without having to make “plans.” Demand escalated for ownership and rentals. The demand for ownership was significant in the low-end of the markets. The new pass holders were willing to buy anything that had a bed, a shower, and a coffee maker. As I recall there was very little discretion beyond that. These were crashpads for new pass-holding fanatics who intended to spend more time on the Mountain than in their new property. It was a mania unto itself. The activity was predominately in the condo market, but it did affect the home market too. (This phenomenon greatly impacted affordability for local residents in the immediate years to follow as market values increased.)

But with higher prices and the MVP mania diminished, the demand for lower-end condo subsided for several years, until recently. The evidence is in the foreclosed/REO sales for 2008 and very recently the enthusiasm around a project named San Joaquin Villas. The cheap condos foreclosed on and remarketed (REOs) were bought-up reminiscent of the crashpad era. Each new low-end REO listing gets plenty of interest. And now the Mammoth Lakes Housing Authority is turning back units (they overbuilt the deed-restricted housing in Mammoth––imagine that?!) and the developers are dumping them off their books at prices that buyers are loving and moving quickly on.

So what has caused this interest in low-end “crashpads”? Is this just good old-fashioned bottom feeding? Is there a resurgence in using the MVPs (maybe the recession finally afforded the pass-holders the time?)? Are the new “pass” deals offered by the Mountain appealing enough to rekindle demand? I haven’t put my finger on it, but the demand is real and it will be something to watch in 2009.

For those statistical junkies, the 2008 closing numbers for Mammoth real estate should be posted on my office website any time now in the usual place. Unfortunately, it will probably resemble your 401K statement. The recent holiday period provided a solid stream of lookers and inquiries despite the excellent skiing and weather. Overall interest in Mammoth real estate seems up but nobody “is in a hurry.” There have been a few home sales in the $700-900K range but the standoff remains between potential buyers and sellers. Higher-end home prices continue to drift downward for anybody who really wants to sell and we’re slowly heading into near-or-below replacement value on some (assuming contractors don’t want to work for free).

Intrawest has re-established their local marketing arm, also-known-as Playground (maybe they should name it Musicalchairs), and are holding daily open house/gallery at the Westin for those of you who want a tour and see the condo hotel units you can now purchase for a substantial (20-30%) discount off of what buyers were closing at just a year ago. No big hurry though, I think they have about 60 or 70 Intrawest owned units to get rid of (besides all the other resale units). But the nice salespeople might have some cookies for the kids. The Westin is the nicest place to stay in Mammoth and they do have a real bar. Intrawest is also starting to put the Woodwinds on sale at discounts, but if a buyer looks around I think there are more attractive properties/deals––but that price-point is a bit stale too. The big winner for Intrawest has been San Joaquin Villas, the affordable housing project they built for the Town and got back because the Housing Authority is overloaded with inventory. So they slashed the prices to the open market and the buyers lined up. (Maybe the market is telling them something.) For folks who like these things, watch Fortress Investment Group (FIG) on the NYSE, the chart looks like most lately but the related stories are good entertainment.

One little tidbit from what I’m calling an “80% of maximum” holiday period, owners (including single-family homes) utilizing their own online rental services reported callers “really negotiating” and “grinding” on price. Certainly a sign of the times, but I wonder how many condos represented by agencies went un-booked because they can’t/wouldn’t deal? Oh well, just more lost revenue for everybody and 80% of peak made it very tolerable and enjoyable for everybody––unless you went to VONS on New Year’s Eve. The balance of the real estate news is pretty ho-hum––the overall inventory of homes and condos is slightly high for this time of year, but still not alarming. The foreclosure mill has slowed through the year-end/year-start but is expected to return to a steadier pace through the year, and construction is at an almost standstill (so it is the perfect time to build or remodel).

Based on my observation, I’ve decided to establish some “real estate red flags” or rules for 2009. So here goes. First: if your agent seems a little anxious or pushy, ask them if they have any personal real estate for sale or in default. Or if they’re late for their second job. The answer will be a good indicator of their motivation for you to buy. While most buyers are in a slow, steady and patient mode, the market doesn’t warrant aggressive behavior. Secondly (and I’ve recently discussed this), purchase quality and location over price. Yeah, some buyers are getting some major discounts––but for a good reason––the property has serious resale-ability issues unless it is a frenzied market. We may not see a frenzied market for a long time. And in the meantime, you’re stuck with it.

Thirdly, be careful of purchasing in uncompleted condominium projects, especially if it is unlikely the same developer will completing it. The Economies of Scale is important to understand in the effective and efficient operation of a condominium project. And history has shown it takes some of these partially completed projects years to really stabilize. And lastly, if purchasing in an older condominium project, try to buy on the back-end of major capital improvement projects and assessments. At this point in the market these improvements aren’t really adding value to the ultimate sales price. But moving into a project that has needs or plans in the immediate future could cost $10’s of thousands in difficult-to-finance assessments/expenses. Of course, everyone is free to not follow this advice.

And last month I found an answer to one of the nagging questions in my Mammoth life. There was a nice article in the December issue of Inc. Magazine on Dave McCoy under their monthly “How I Did It” feature. (None of the Mammoth-based press has mentioned the article so I figure they all missed it.) Dave is quoted, “In 1991, we had to lay off 150 people, because we had six years of very light snow. Instead of keeping all the best people, I looked at the people that were really able to take care of themselves and let them go first. It worked out, because they ended up doing greater things than they had been doing. It may not have been wise, but that’s the way it is with me.” Well, well, well––some clarity.

Dave ended with, “There’s no way to understand my life unless you see where I spent it. When it’s clear and calm on the mountain, there’s no more beautiful place in the world.”

That Mr. McCoy, is something most of us understand.

"Destination Resort" or Resort of Destiny?

Since some of my recent readers come here to be entertained by my "ambiguity" and "incessant bullshit" and the new year is a time for reflection, I decided to look back to columns I had written in the past to see how I was doing on my ambiguity and BS over the years. This column was published 17 years ago after 5 winters drought and during a deep recession in California. The one thing I recall is how many residents of Mammoth had to leave because they could not make it here financially, including several associates in my company. Much of the column sounds familiar and and has an almost eery perspective to today. 

Reprinted from the Mammoth Times December 26, 1991

"Destination Resort" or Resort of Destiny?

"We're looking for something that has already found us."

––from the poem "An American Prayer" 

by James Douglas Morrison

Everyone above ground knows that the 90's are upon us. The media abounds with information about how the 90's will shape up to be different from the 80's. Economically, socially, politically. All of it hits home. Much of it makes me think about the future of Mammoth. And much of it makes me think we should be aware of the fact that the future demand and desirability of Mammoth is going to be supplied more by what already exists rather than by something we think should exist.

Yes, while Mammoth has reluctantly strived to become something new, what Mammoth has always been is becoming fashionable and in demand. Gone is the so-called "decade of greed and glitz," although most of it passed over Mammoth while we struggled through drought and township infancy. Dispose of the Beemer and drive the Explorer for the remainder of the decade. The signs of this new life are evident everywhere, even in the Golden State. Family and friends won't just be considered economic assets anymore. And he who dies with the most toys is probably better off dead than going through the hell of bankruptcy.

What's important for the 90's? "Value" is one of the words being thrown around quite a bit. Value is probably going to be a double-edged word for the decade. Money will be tighter than previously, so not only will getting your money's worth be important, but getting something of quality, too. More importantly, after a decade known for unruly materialism, values themselves are going to be under close scrutiny--and mostly from within. We'll all need a place to escape, to relax, and to most likely get some exercise in the great outdoors. Mammoth scores very well in these categories. That's why Mammoth is so poised for the rebound. We can be happier with what we have, rather than being overly-concerned about things we think we need.

While I would love to see a few nice resort hotels in this town, the reality of overbuilding and a changed economy has the hotel industry reeling. When recent newspaper articles report that major successful chains are not supplying the complimentary sewing kit or a third hand towel because they need to cut expenses, the writing is on the wall. While Mammoth is a logical location for hotel development, are a multitude of hotel rooms what the market will demand? Not if this is the 90's that everyone is talking about. Quite frankly, that should be good news for a town that is so condo-dependent like Mammoth. Rather than seeing brochures with pictures of glamorous people socializing around the lobbies of lavish hotels, we instead can envision the glory of families gathered around the home fires, enjoying good company and a wonderful meal, in the confines of a Mammoth townhome. How trendy.

From a business standpoint, this is good for many people with something already invested in Mammoth. It upholds the economic viability to the owners and management of these properties, and it produces plenty of bed tax for the municipality. But there are some things that need to be accomplished before Mammoth can fully capitalize on its assets 90's. Golf courses are certainly one. Golf is so big that if Mammoth wasn't presently moving forward with two championship course, and eyeing potential municipal courses, you would have to question the maturity of the community. And how can any environmentalist deny something that can be beneficial to wildlife, such a good use of reclaimed water, so pleasing to the eye, and such a good way to spend an afternoon? (I know, I know: dogs chase the deer.) We need the back nine (ten) at Snowcreek approved and completed. We need Loadstar completed. And a municipal pitch-and-putt would be a great place for us hackers to learn to hit the ball.

We also need to continue our pursuit of better and more efficient ways of getting to this remote area. Our guests are always going to drive here--it's too ingrained in their behavior. But we must insure that the drive will only become easier and safer. And we must improve the intrastate and intestate airline service. These things are beginning to get done. The momentum needs to continue. Mammoth's marketing has taken giant leaps. Packaging is becoming a stronger and more acceptable concept. Local education has improved, and college credits can be earned. Mammoth needs to establish an advanced service education program like those that have been successful in other progressive resort areas. The momentum needs to continue.

The 90's will return Mammoth to what Mammoth is all about--the mountain experience. A family mountain experience. And it's okay if a little golf and shopping can be enjoyed along the way. The solid efforts of planning and land use analysis will improve the mountain aesthetics; the infill and redevelopment that is so inevitable will only make Mammoth better. In 1992, the original General Plan of the Town of Mammoth Lakes (circa 1987) will be revised for the first time to refine those goals.

The trends foreseen for the 90's should affect local real estate in a positive way. Those condominiums that are sometimes degraded, by local citizenry and visitors alike, should have a resurgence in popularity because of the social demand, downscaled economics, and increased return on investment. Many good properties remain under the $100,000 price tag. The demand by the nightly renter (transient occupant," in Town lingo) equates to increased revenue, which gives stability to all of those involved in the trickledown of owning, managing, and renting. That includes the Town coffers, which in turn provides the services and amenities the public desires.

Interest rates are low and are expected to remain there for some time. And as more proficient management of the condominiums brings more income, these properties will re-evolve as good investments from a financial standpoint. And they have always provided  good return in the "quality of life" column. All of this means a more vibrant market and community for the Town of Mammoth Lakes as we head into the heart of the 90's. 

-- 30 --

Vacations and the holidays are over, expect a new Broker's Report soon. 

All Along The Real Estate Watchtower.

This Mammoth Real Estate Q&A appears in this weekend's The Sheet. Mammoth has plenty of new snow, classic warm weather and a big crowd.

Q: Well it's that time! Time for Paul to make some predictions about what the Mammoth real estate market will do in 2009 so we can plan accordingly. So what can we anticipate for the year ahead? And as usual, don't sugar coat it.

A: Predicting anything in Mammoth has always been a dangerous preoccupation. That said I'd prefer to refer to the following as "things to watch for" in 2009. Curses aside, we do live in interesting times. Mammoth has entered a familiar "pain and dream" cycle once again but with all sorts of new twists (let the Village go to hell and re-redevelop the entry to town--that will solve everything). Some actually think they can re-inflate goldilocks, others are seriously lost in denial, and laughingly, there are others that think they can hide from the most recent past by being gloriously reborn at something now worthwhile. And some are just getting down to a new (old) way of doing business.

The first thing to watch is what I'm watching the closest--foreclosures. The 2008 pace in Mammoth was slow but steady. The volume wasn't alarming but they did affect the values, mostly because the properties were priced to sell by unemotional sellers. The good news is that there were buyers, and those buyers gave us a clear idea of the price support levels in the local market. As we advance into 2009, I think we will see a similar pace, or maybe just up a little. Like many real estate markets, a significant volume of sales will be foreclosed (REO) properties. Indicators are there will be a few more in the Village condo hotel projects, maybe even a few in the Westin Monache.

Right now the lender/owners of these REO properties appear really motivated. I think its has much to do with pressure to get cash back on their books. But every REO transaction is different, even with the same owners. So predicting how they will proceed is impossible. But the REO sales will continue to set the pace of the market. If the volume of available properties comes up, or if the inventory lags, then sales prices will continue to stairstep downwards.

The next thing to watch is interest rates. As of this writing the rates have come down sufficiently enough to spur a surge in refinance applications. That is significant. A fixed rate mortgage with a nice low rate is a solid inflation hedge. And just like gas prices, they may come down to ridiculous levels, at least for a while. Conforming loan limits are up in Mono County. But the rules for qualifying are another story. Stated income loans are out. FICO scores (today's adult report card) and equity are critical, and sustained and verifiable income (tax returns) a must. All others need not apply. At least for now. With all the inevitable changes in Washington, who knows what will happen. A repeat of 2003-06 is unlikely. But lending has always impacted the market, and it will in 2009. Stay tuned.

The next thing to watch is the pressure on the Town to tinker with the ordinances regulating nightly rentals (transient occupancy) in the single-family zoned neighborhoods. I've written about this in the pat, but now the writing is on the wall. The Mammoth Town Council is reacting to their budget shortfall (it's deja vu all over again). They just moved to cut ten senior staff positions. Now they're going to look for more revenue (bed tax). For years the Town has looked the other way on clandestine home renters. It's a bit of a quandary, owners are renting for big dollars and the Town isn't getting their 13%. But the whole program violates the Town ordinances.

After all the bear shit the Council has waded through in the last year, who would want to sit through these public hearings? But now it has become a matter of getting the money (sounds like an old Yiddish saying a friend of mine used to say). Many locals don't want to allow transient rentals in the single-family neighborhoods--especially if they live there. Some don't care. Some make a living servicing the arrangements (and could prosper more if it weren't "illegal"). But the locals are the voting block. The second homeowners are more inclined to be in favor. If nothing else they would like to have the option of legally renting and perhaps offsetting some of the expenses of ownership. I think there are many potential buyers of homes who don't want to own in an Association but would like to own a quality vacation property that generates revenue. Clearly, the renters like renting homes. Some of these underground operations are pulling in big numbers (and little taxes). In 2009, economics may dictate a new direction. And that direction could impact values.

Another one to watch, and I did predict it (it was so obvious), is what, or who will end up with the infamous Hillside property. Roger Staubach/Cypress Equities was foreclosed on just a couple of weeks ago. That was going to be the Ritz-Carlton. The property could have been picked up a the Trustee's Sale for about 20% of what Staubach/Cypress purportedly paid or about 25% of what they owed. It went back to the bank. Too bad the Clearwater people don't have the vision to own it. Okay, so I'll make a small prediction. If the Clearwater folks would buy and develop the Hillside property instead, and give the Town the property they own on Old Mammoth Road as their impact fees, everybody would be so far ahead. But what the hell do I know, I'm just the court jester. But somebody is going to buy Hillside for cheap. But then what do they do with it? With condo hotel projects on their heels, development fees and costs out of control, and development financing in the toilet for many years to come...I have an idea. The Town should make the new owner plant extensive indigenous grasses and wildflowers on the property as an environmental measure to control dust. Then the Village and surrounding neighborhood will have a nice park for the next 20 years. (Some small pads for our Pilates mats would be nice too.)

And speaking of developers, will we hear anything profound in 2009 from Starwood Capital? (Who are they again?) I really am hoping for a Baccarat Hotel now instead of the "1" (it appears there will only be one "1"). After all, Mammoth is a Baccarat kind of place. The Ski Area does have an impressive new logo, but what happened to the new brand? They've spent so much time and money and had all the experts working on it. Is the logo the brand? I'm so confused (as usual). Maybe they'll get this all sorted out in 2009. That isn't a prediction, only a hope. The world seems so full of hope these days. But we do have daily air service now and God knows we all need for it to continue. It all seems a bit anticlimactic at this point.  

There is one prediction I really do hope comes true in 2009. I plan to get more skiing in. But for some reason that never seems to work out either. Happy New Year!

Oooohhh, That Smell––Picking at Bottoms

This Real Estate Q&A will appear in the Thanksgiving issue of The Sheet, due on the streets Wednesday. But since I'm leaving town for the holiday I thought I better get it posted. The Ski Area is working hard to get more runs open, but the skiing has been very fun and there is more moisture on the way.

Q: So Paul, does everybody, including us, think they can pick the bottom of the real estate market in Mammoth? We think that with all of the information now available on the Internet, including your blog, we will be able to do that. But c’mon, what’s your best take on when the bottom will be and can we time it perfectly?

A: In the last few months the questions and comments about “the bottom” have become more frequent and more entertaining. Many owners or wish-to-be sellers are in the
“we’re there-we’re there, or…we’re close, aren’t we?” state of mind. Or they’re convinced that the start of regular air service (Dec. 18) will be the bottom. Meanwhile, bottom feeding buyers are trying to predict the specific quarter, like “2nd quarter 2010, 2013” or based on some other event such as, ”when Starwood sells to Vail” or “when Main St. is redeveloped” or…(well, I’ll save that for later). At least the bottom feeders aren’t talking about earthquakes, volcanoes and hantavirus. The only thing I know for sure is that we’re heading towards the bottom. I know, genius of me to have that figured out.

Everybody wants to predict the bottom of every market. But cycles are never perfectly predictable. This picking the bottom stuff (at least here in Mammoth) is more psychological than financial. In fact, I’ve had people get upset with me because I would not proclaim “the bottom” or predict its soon arrival. Read any good financial book and you’ll discover that you’re lucky if you bat .500 at anything. Your odds of getting perfect skiing are about the same, but that doesn’t stop most people, especially not fanatics.

The one thing most people don’t realize about “bottoms” (or tops for that matter) is that you don’t know you were there until months, or years, after they occurred. No algorithm or statistical modeling will help, especially in Mammoth where emotion and “life’s clock” are such huge drivers in the market. True bottoms can only be seen in the rear view mirror. And losing your youthfulness, or squandering the opportunity for precious years with your children and grandchildren, while waiting for some “bottom” no longer makes any sense for most.

My regular readers will know there are far more important concepts to consider than nailing the absolute bottom. First, they know I watch the foreclosure market intensely because that will prove to be the best barometer of the market for a multitude of reasons (previously discussed ad nauseam). But secondly, they know that hitting the bottom isn’t as important as purchasing a quality property, and this type of market provides the buyer the patience to do that. Back in the goldilocks market I would gasp when sales would come through the MLS and people were buying dog-meat properties for high prices. The 80’s and 90’s taught us there were locations that simply didn’t resell when the market got soft. When the market got hot there wasn’t much discretion. Non-discerning agents and their buyers had little insight, and after all, real estate only goes up. In today’s market buyers should simply get screaming deals or great properties. Preferably both, but buying an outstanding property is far more important in the long run.

The third thing my readers know I watch closely is the inventory. The total inventory is really so small that it is relatively easy to watch. (I have found that many potential buyers know the inventory better than many local agents.) Right now there is a growing number of wait and hold sellers/owners. Personal knowledge and the files on my desk show this. The inventory also reflects it. Many listings expire and don’t reappear. Mammoth really has an unknown supply of sellers. Most of these people aren’t necessarily delusional, they just fall into the “don’t have to sell” category, and most likely there is great emotion tied to the property. (Adult children who rarely come to Mammoth seem to have a strong influence over their parents when it comes to selling “the Mammoth cabin”.) Others are just waiting for the “adjusted basis”. And many that didn’t sell in the past year are now happy they didn’t because they likely would have put those proceeds into mutual funds. So much for batting .500.

On the other side of the pendulum swing, some of the current listings and “short sales” are going to end up as foreclosures. And some heading to foreclosure aren’t listed, they aren’t even going to try to sell. (And pay attention, banks are getting hungry for cash.) But overall the inventory is remaining stable, there are no staggering or alarming numbers. A good percentage of that inventory would probably sell if the prices were cut by another 10-30%.

The other thing about real estate bottoms is that they aren’t “V” shaped bottoms, they are “U” shaped bottoms. And with all the wonderful economic news out there today, I would expect the U to be rather wide. That is unless some black swans come to the party. But what that really means to me is that this bottom period that we are in, or are about to enter, or is somewhere in our future, will be a period for buyers to make quality purchases in the local marketplace. And please don’t come looking for “cash flow”.

One thing I’m also observing, and should remain so, is that not all segments of the market will bottom at the same time. For instance, the values in the condo hotel segment of the market have declined substantially off of the peak(s) (the rear view mirror is a little fuzzy). I’m seeing numbers (recent sales) off as high, or greater, than 50%. There are buyers at these discounted prices, but I think there will be some additional minor declines in value, especially in the less than best locations. It all depends on how strong the winter rental income is and how many more foreclosures we will see in the next 12 months––and there are some in the pipeline. On the other hand the single-family home market between $700K and $1M remains stubborn. If the sellers cut their prices by 50% off the peak in this segment the inventory would vanish in a few days. Foreclosures aren’t impacting this segment of the market. Decent homes in the $500K range sell quickly. We may see the bottom of that segment in the next 12 months. But would could be close now. Not all segments are created equal.

Buying an excellent piece of real estate to share with family and friends should be more satisfying to the ego than being able to brag about buying at the bottom for dirt-cheap. Based on the emails and calls I receive, more and more people are beginning to think this way and are spending the time to educate themselves. There are still plenty of people that want to own in Mammoth, maybe more than real sellers. These buyers still have cash and good credit, and there are simple reasons why they do. Now if they can just get that perfect property and time the pricing bottom too. Just don’t ask me how to do that. As for the bottoms of our skis, I’m still amazed at how the crews on the Mountain can make such good skiing with such little snow. Enjoy! And Happy Thanksgiving!

The InnerView--Mammoth, finally a "Finalist"

In a new feature to this blog, the InnerView will present regular interviews with key (but sometimes behind the scenes) individuals who bring special insights into Mammoth real estate and the community. This InnerView is with Bill Medove, sales manager at the new Westin Monache.

Bill Medove agreed to meet last week and answer some questions as long as he could get a couple of hours of “job required” skiing in beforehand. How else can somebody sell Mammoth properly? Bill came to Mammoth 31 years ago to be a professional ski bum, aka ski patrolman. After eight years on patrol, he became manager of the Mountain’s Host program, and because of his skills as an effective trainer ended up in Human Resources. He then went from training staff to recruiting staff and selling a working experience to potential employees. Then came the condo hotel boom and he spent seven years at the Eagle Base managing Owner Relations for all the newly built units. But sales are clearly in his blood and he moved to manage Mammoth Mountain’s Domestic Group and Destination Sales Market Segments. Last July opportunity knocked––the Sales Manager’s job at the new Westin Monache was offered.

What is the most important thing an existing owner or potential owner in the Westin Monache should know?
There is real power in the Starwood brand. (In this case, Bill is referring to the Starwood Hotel/Westin brand, no to be confused with Starwood Capital, the owner of the Ski Area.) There is real accountability and high standards throughout the whole organization. The Starwood Global Sales Organization has a great network and they share those connections and leads with all of the Starwood properties. The Starwood Preferred Guest program has an intense and loyal following. The database is enormous. The professional meeting planners hold the Starwood brand in high esteem and refer Group’s to the properties because of the consistent and high standards. I have the most professional branded marketing and sales materials you could work with.

You’ve gone from owner relations to group sales––essentially moving from day-to-day owner issues to working with outside groups and travel coordinators; how has that transition been? Do you miss anything from owner relations?
Managing owner relations is like being the “owners little helper”, and their “punching bag” all at the same time. Much of the time I was selling the rental program to new (via resale) owners and current owners who were considering changing rental programs. I met a lot of great people and made many friends––people I hope to know for a long time. The seven years I did it were important years to be grounded here in Mammoth with my wife and son. But the natural progression was back to sales. Marketing and Selling the Westin experience excites the senses and we’re catering to a whole bunch of different people. The large group we hosted in October, the Audi group, resulted from a Starwood lead, from a sales manager like myself.

And selling this facility: in less than a year we’ve risen to the top of the guest satisfaction rankings in the Westin system. It’s across the board improvement month-after-month. We’re fulfilling the desires of the discriminating destination traveler. It’s all very exciting. We are involved in the community––our summer pool events were a great success, the charitable donation of our facilities for local events, financial contributions, etc. The Westin really wanted to reach out to the community and welcome them into our Resort property. The nightly Westin ritual of the “refresh” happy hour was an example of this offering.

The Westin is one of the leaders in bringing the lodging community together here in Mammoth with the sharing of ideas and bringing in some new events. There is no security in snow country during these challenging economic times, you have to change and adapt to succeed. The new blood in the community and the Resort has helped. We’ve thrown stones in the river, we are laying the foundation to build the bridge to becoming a true destination.

You’ve gone from representing the unbranded Village condo hotel units to the branded Westin, and now with air service starting, Mammoth is a “finalist” as you call it in the group buyer’s eyes; how important is that?
It is everything. Prior to being at the Westin, there were few leads, no opportunities to even respond to the group buyer’s Request for Proposals. Part of that had to do with the lack of air service. Now I can sell the area, the accessibility, the uniqueness, and I have the Westin brand. Statistics show Mammoth is the third most visited ski area in North America. With group buyers, our competition is usually a Caribbean island resort, a cruise, or other, mountain resorts. Professional meeting planners like Starwood properties. And again, we get Starwood leads. One problem for many potential visitors is that a flight to Mammoth adds an extra day. We need to become part of the “dual destination” tourist business. The average International ski vacation for most is 10 to 14 days. We need to pursue that. The State of California is in a six-year program to heavily promote tourism and California Winter sports. We need to be involved. Internationally, California is not known as a ski destination. My goal is to guide the clientele into better properties. This is the beginning of the push to attract quality mid-week business--––visitors with discretionary income. We’ve turned the corner. But the economic news of the last month has slowed the momentum. The snow and chairlifts early opening helps. Corporate business seems to be staying closer to home.

You have been on the leading edge of the post-construction condo hotel era here in Mammoth; what have you learned to make condo hotel more successful in the future here?
The developers will always cut corners if you allow them. There is always a tug-of-war between the sales team members, common area fees and issues, the cost of building here. The Homeowners Association, the Board in particular, has got to be organized, strong and persistent in holding the developer accountable. Hopefully, the builders and developers are going to hold themselves accountable in the future. What we have going forward is a unique opportunity.

The fees Westin and other condo hotel management entities take (percentage) for their rental service is often criticized for being excessive. Even though that’s not your department now, do you have a problem justifying it?
Not one bit. Service levels and standards have a cost. At “XYZ Rental Company” I’ve seen a vacation spoiled because of the lack of maid service, 24-hour on-call personnel, amenities and services. It’s all about the service level, and it has a cost. Potential owners need to indoctrinate themselves with the properties and understand them. My personal cause is bringing mid-week visitations into the owner’s units. I’m doing on-site Familiarity Tours with key decision makers in the travel industry to influence their decisions. We’re working with the International wholesale tour operators to attract long staying visitors too. We need a mix of the visitor market segments. I’m committed to selling the experience of the destination first and the specific property second.

How is it working with (Westin General Manager) James McGillivray?
James is a classic, a seasoned, educated hospitality professional. He understands the balancing act between servicing the guest, keeping the employees happy, and satisfying shareholder needs and the needs of the individual property owners. He is very homeowner centric. It is all about accountability. He is a genuine and caring Hospitality professional. He sets the tone for the entire property.

What still turns you on about Mammoth?
The people, the small community, the environment…it’s still an exciting place, the passion for the eastern Sierra. It is a unique destination.

If you were conducting this interview, what would you ask yourself?
What do we do next? How do we keep Horizon Air after the subsidy is over? The Destination needs to establish the line and make good business sense for the Airline. How do we encourage Horizon Air to provide summer air service? In summer, how do we create a better connection with Yosemite? How do we improve summer and fall business? We need to build positive working relationships between all of the main players here in Town, stop competing against each other. How do we solve the missing vibrant Village? I’m concerned about the guest’s perception of all the vacant commercial space in the Village and in Town. The guest that comes this year is our spokesperson for years to come. Word of mouth is significant for this area.

The Westin has been a surprising difference from everything in the past. The employee-to-guest ratio is much higher at the Westin. I hope the Westin will pull everything else in the community up. We recognize that these properties are major assets and investments for their owners. We take the ownership very serious.



Thank you Bill!

Hot Water, Everywhere

Broker’s Report, Oct 25––This time last year I returned from a fishing trip and reported cold water in the Pacific Ocean along the Baja coast (my conjecture back then––La Nina). This year it is completely different. Water temperatures in the same locations are 10-15 degrees hotter this year. We can only hope this is an El Nino type pattern and will result in a wet winter. Mammoth is currently experiencing a fabulous “Indian summer”--––warm days perfect for recreation and brisk nights worthy of a fire in the fireplace.

Upon my return I realized I owed my readers a Broker’s Report more than a fishing report, so here goes…Being away from my desk for two weeks seems like a year but it doesn’t take me long to get back to speed when all the characters pour into my office begging for fish. Besides all of the national news events, I come back to local reports, rumors, and information of all sorts to process (I’m glad I missed the fist fight!). Mammoth is truly (once again) experiencing the pre-winter, no-snow-on-the-ground, stressed-out, recession blues. Lots of us have been through this in the 80’s and 90’s so it’s really no big deal. Go chop some wood, go for a bike ride or a hike, try to go fool a big brown, or simply leave town.

Two weeks of play means a week of serious catch-up, and I came back to five new REO properties on the escrow board. So what is the market really doing? There is certainly REO craziness; multiple offers, “highest and best” counteroffers from banks, pissed off potential buyers, posers and losers, and all sorts of hot water for those who can’t read, listen, or comprehend the rules of buying a REO (does your agent have a clue?). And the preponderance of the foreclosed properties continues to be condos, new and old.

The balance of the market has some activity, but for the most part listings now have to be competitively priced with the REOs. The recent stock market fall has queered a few transactions––buyers with falling net worth’s just get a little nervous (and you can’t blame them). And the concept of “wealth redistribution” isn’t going to help our market. Other transactions have come apart at the last minute due to financing glitches, and most likely other financing could have been attained through another lender but the buyers are walking away frustrated, or simply hesitant.

Reality is the local market needs the election over, the financial markets to stabilize (somewhat) and a few big snowstorms. In Mammoth, there is nothing like a good day of skiing to push buyers off the fence. Deep discounts in list prices don’t hurt either. Right now the condo inventory is down (with still plenty of Westins to choose from), single-family inventory is up slightly with the only real price reductions coming in the $1-1.3M range and $2-2.4M range, and lots aren’t selling at all except in the Bluffs at significant price reductions.

Meanwhile, Mammoth is heating up over the upcoming local election. Measure “K” is an $85M school bond initiative, mostly allocated to rebuild the high school. The whole thing is becoming more divisive than I thought it would. For people with kids it is a slam dunk vote. Renters are probably indifferent. Jerks like me with who own property but don’t have kids scratch our heads and try to figure out what’s best for the community. (Anybody got a real cost/benefit analysis?) And locals who have been around know how poorly the last school bond funds were managed by transient, “where are they today”, school officials. But what I really wonder is how all the second home owners feel about it, after all they will be paying a large chunk of the bill and receive dubious benefit. It’s a tough one, maybe it would be more palatable if the dollar amount wasn’t so high, or maybe if they were tying to solve the housing issues for quality teachers, or simply admitting that fancy buildings themselves don’t equate to a better education. I usually vote against such smugness. Do they even teach reading, writing and arithmetic anymore?

On the topic of property taxes, you just received your new bill. The forms for Prop. 8 requests for assessment reductions can be obtained at the Mono County Assessor’s office at 760.932.5510.

The next area of hot water to report is for residential landlords. Vacancies are at an almost historic high. Nobody keeps records for this here in Mammoth––just my own empirical observation, which can sometimes (ha, ha) be more accurate than raw data. This is all the cumulative effect of the affordable/employee housing built over the last few years, the disappearance of large construction crews in town, more locals’ home ownership, more specu-vestors in the long-term rental pool to generate cash, and the general economy. This could be a great season to be a ski-bum, so for all you unemployed boomers or unmotivated GenXer’s, here’s your perfect chance. Be careful though, it can be intoxicating.

For those buyers who walked and defaulted on their Westin Monache deposits (10%) in the last year, the answer to the correctness of your decision came through late this last week. The first two re-sales in the project are recorded––one at a 15% haircut, the other at 25%. Both were cash purchases and likely the same buyer. (Financing is only available for billionaires.) Add up the carrying costs, the selling costs of another 6-8%, and add back in a trickle of income, and you have your answer. Sellers may even be lucky enough to get a supplemental tax bill after the close!

While I was gone they had a nice ribbon cutting at the Mammoth Airport terminal and a Horizon Bombardier made a flight from LAX to Mammoth for good will. Let’s hope this all goes well starting Dec. 18. And for a select few of you I may be available to come down in my truck and pick you up––it’s a long walk. And the drop in gas prices may end up being Mammoth’s salvation this winter.

That’s all I can take for now--––my head is still somewhat in the tropics. I need to get back to work before I’m in more hot water with my clients. My next post should be something new, a new feature that I hope will add even more value to this blog. Stay tuned. Damn, fresh wahoo tacos sounds good for lunch.

Thanks to all who read and comment here.

"Make'em a Stupid Offer"

This column could be titled Mammoth Foreclosures 3.1, but the phrase “make’em a stupid offer” really stands out in my mind and is far more applicable to the present. While this statement may have no significance to the vast majority of you, it is ingrained as part of my teenage years. I heard the phrase regularly and it was usually while I was eating dinner. This dates back to long before the mania of cell phones. Our family phone was on the wall in the kitchen, and my father was a real estate broker. Today, I recognize the era––the 70’s––were pretty crappy economic times. (Will we see the return of stagflation?) But at the time nobody really seemed to have more or less than anybody else and nobody I knew had dirt bikes or went snow skiing. On Saturday night my parents went out for dinner, and the kids got Taco Bell, and that was a treat.

At the time I really didn’t grasp what “make’em a stupid offer” meant, but what I’ve come to realize is that my father was trying to get people to make offers during difficult times. And “stupid” meant low or with some creative terms, and any offer got the ball rolling. (Speaking of creative terms, I’ve come to realize that half the agents in my office don’t know what a wrap-around mortgage is––it’s like asking them who wrote “Smoke On The Water.”) Sometimes a stupid offer is the best way to test the waters. I’m sure during those times, much like now, sellers were trying to eke out every dollar and were unrealistic about what the market would bear. And buyers had their own concerns. But like current times, at least a stupid offer is an offer and it might just find out what the seller’s real motivation and bottom line is. So now with asking prices coming down (and greatly influenced by REO offerings) we’re seeing potential buyers testing the waters. And some of the most serious testing is going on with the bank owned properties.

Not a day goes by that a call comes in with somebody wanting to make a stupid offer. A few days ago someone wanted to offer $125,000 on a REO condo listed at $299,000. “That’s as high as they will go” the agent said. Now California real estate laws certainly allow people to make stupid offers, and the same laws don’t compel the seller to respond to any offer. I think that’s why it is called “an offer.” But the bank owned properties in Mammoth are bringing out the stupid offers, some really stupid, so it is time for a little discussion on the topic.

Quite frankly, and many real estate “gurus” highly recommend it, every buyer should start off with a stupid offer, especially in these types of economic times. But there is always trepidation in doing so and rightfully so. Experience has shown that potential buyers who make ridiculously low offers are seldom for real. Even when you successfully get them into an agreement/escrow they often use a contingency to get out of it, or even worse, they arbitrarily wiggle their way out of it and waste everybody’s time (and usually piss everybody off and dangerously raise everybody’s blood pressure). And in the small brokerage community of Mammoth, the names of these “buyers” usually get around pretty quick (oh, those guys!). And in our market some of these offers come from people who have never even seen the property they are offering on. Some have never even been to Mammoth. Ironically, many of these similar types of buyers are folks who bought on the heels of the “Starwood announcement” and are now the same one’s being foreclosed on. Maybe they would be better off at the tables in Vegas.

There is an art to making stupid offers and many of the “successful” agents from the recent goldilocks period don’t want potential buyers to understand it. It’s called work. And some critical thinking might be required too. (“What? You mean I have to read the whole MLS input AND some associated documents? You must be kidding?”) Just a little investigation about the property and the seller can tell you plenty. In fact, I’m convinced that some of the big players who rode through Mammoth in the past decade actually hired real private investigators to find out all kinds of things about sellers. Knowing when the seller bought the property, how much is owed on it, or have there been any offers, etc., are the basics. This is cursory knowledge before even considering the making of a stupid offer. Or even just asking the listing agent why the seller is selling (assuming you can get the truth) is a good question. Sometimes just a keen walk-through of the property will reveal things, or talking to the neighbors. There are all kinds of tactics.

And buyers who want to make stupid offers with a chance of scoring good deals need to prepare also. Getting pre-approved for loans or having those account statements handy is essential (and required to make an offer on an REO). Doing some front-end due diligence and making offers without significant contingencies proves serious intent. Stupid offers with tons of contingencies and lackadaisical intent aren’t worth much. And “cute” provisions that come out of left field are even worse. Sellers in a position to even consider a stupid offer want to deal with someone who is likely to perform on the terms. They don’t want to deal with people who are just throwing poop at the wall. The asset managers of REOs don’t even want deal with these types of buyers––every T must be crossed and I dotted. I use the analogy; buying an REO is not a horse race, it is more like applying for a job.

This brings me to the subject of short sales. There are lots of agents chasing short sales around and plenty of seminars that agents can attend to convince them to do so. If you’re a buyer chasing a short sale, especially in Mammoth, you better do some due diligence on the seller. Does your agent understand the difference in California between a recourse and non-recourse loan? I’ve been quiet on this subject––just watching the process in this new economic environment––trying to see if it is even feasible. Making stupid offers on short sale listings in Mammoth is futile. The market is showing that getting involved in a short sale in Mammoth is not only going to be frustrating, but also likely a waste of time. Again, it’s the nature of this market; the structure of the loans used to purchase the preponderance of properties in Mammoth (non-primary residence), and the financial position of the “sellers” (no provable hardship), and the lender’s accounting, tax, and insurance strategies all in the mix. I don’t think any government bailout or bill is about to change any of that. Becoming mired in a short sale is one certain way for a buyer to be distracted from finding a real deal on a quality property. But be my guest.

And where might some stupid offers be appropriate in today’s Mammoth market? Try any property with “luxury” in the marketing material and property description. Luxury is the new synonym for overpriced, maybe even grossly overpriced. Luxury is defined in the dictionary as something that is rare or hard to achieve. And yet it has recently come to describe almost every new property in Mammoth. (Or maybe everyone is confused because Mammoth IS the real luxury even though we tend to forget it.) Many developers are still holding on to lots of luxury inventory. Something will have to give. Servicing debt like this is becoming quite unsavory although some forbearance is likely, but that can only last so long. Credit only continues to tighten. And there’s a solid inventory of (luxury) high-end homes (many built on speculation) that are likely to become ripe for stupid offers. And I know there are many lurking, watching, wannabe-scoring-the-trophy-home buyers out there.

The good news for now is that there is still buyer demand. There are even a surprising number of cash buyers. Mammoth still has great appeal to plenty of people. Meanwhile, the fall colors are turning nicely and we’ve had a glorious, crowd-free September with fabulous weather. Mark it on your calendar to spend a future September in Mammoth. And there’s nothing stupid about that.

Don’t Feed Our Fears

While it is still summer on the calendar, the new piles of pines needles on the ground are a sure sign winter is just around the corner. I wish my time allowed me to specifically address all the comments both left here and emailed, and I would love more time to play with innuendo, but I do have clients to serve, a business to run, and a life to live. The most recent theme is “What will be the generator for the next cash flush, appreciation growth period?” or something like (in my words): What’s going to make the market GO again? I get asked the question here in this forum, in the produce section of VONS, at the post office, hardware store or just about anywhere else I go in town. (Thanks for the ski season when I can hide behind my helmet and face protection and listen to others pontificate. Be mindful of who you're riding the chair with.)

As California and Nevada real estate values escalated in the past 10 years, Mammoth was especially prone to “triggers” that sent the market into mini frenzies––Intrawest marketing pushes (originally dubbed “mail drops”) and other well timed “announcements” and hyperbole, and the granddaddy, the Starwood acquisition era. And the ridiculously low interest rates and easy qualifying spiked the Kool-Aid bowl. But now the economy is turned on its head and developers are hunkered-in and real qualifying is back in the process. So is there any possible trigger on the horizon? (By-the-way, anything with “Ritz-Carlton Mammoth” emblazoned on it may become a valuable collectable.) My personal feeling is this potential trigger will likely come from an external influence rather than an internal one. But in Mammoth one can never be sure.

Since I’ve always fantasized about writing fiction, let’s first discuss what the possible internal influences could be. The two-and-a-half years of new Ski Area ownership appears to be a rudderless boat, almost dead in the water. If we compare the timing of the purchase (the top of the market and most likely overleveraged) to so many other purchases in that time frame, words like default, write-down, short sale, etc. instantly come to mind. Oh, excuse my ignorance, the Ski Area is too big to fail. The really exciting thing coming is the new branding, to be set in motion this fall. If it isn’t perfectly professional, with solid buy-in from the community, then it may just become the New Coke of Mammoth lore. I’ve promised to be open minded and enthused.

The Ski Area just seems to lack leadership of any kind. It appears to be run more like a highly leveraged hedge fund lost in denial. And we know there are plenty of those out there, just open the financial pages. Maybe Woolly could become the new figurehead and make guest appearances in town assuring the citizens that everything is all right. But the point of all this is that something has to change––maybe new ownership, new management, somebody or something, with real resort experience and caring. I hope for something other than a bunch of blast-through private equity/hedge fund/Wall St. profiteers in our future. Excuse my ignorance again. It may take years of pain, but…the sooner the better in my opinion. But would that be a trigger? And meanwhile, real estate values could take such a direct beating due to this floundering that this alone could be the trigger. People (buyers) are definitely out there looking to invest in Mammoth. Most are on the sidelines trying to time the bottom.

Other internal triggers? Most now fall under the category of “lost opportunities.” Kool-Aid clouds the thinking, darn it. (Or maybe we just need enough passage of time for people to forget.) The “new” airport and air service won’t create any pop. If successful and able to continually grow and expand, there is no doubt that it will be good for sales activity and values. But it will be an ongoing process. New splashy developments have lost their trigger value––too much letdown emanating from the Village and Eagle developments, or lack of developments. I say five to ten years to correct that ship, and about that much time to re-absorb the inventory to create any real demand, or at least the demand for developers to justify moving forward.

The condo hotel concept is going to need some serious re-working, the lenders on both ends are scared to death and the concept is flailing in almost all markets. Here in Mammoth, the back-end execution (promises, promises) of these development plans has probably caused more damage then anything else. The projects themselves are okay, but the other “pieces of the pie” were left out. So maybe now we can convince the outside world that we have the Fountain of Youth here somewhere (Dave seemed to have found it). Or maybe we should quietly plant gold instead of trout in our local creeks and bring back panning. The powers-that-be need to create a new gold rush. They don’t seem too interested in fundamentals.

The external influences are much more compelling. Whether they have the potential to create a frenzied trigger is hard to say. I’ve referred to Mammoth as a “safe haven” because I’ve heard that term used by others. It’s more than just affluent people parking money in local real estate. What I’m talking about is the potential for a “black swan” event, or even the general degradation of life in southern California metropolitan areas. With ancestry in Los Angeles reaching back to the 1800’s, I can’t ignore the area’s history of civil unrest. Things don’t seem to be getting any better and tougher economic times will only make things worse. Problems there could create more demand here, and a small surge in demand can put plenty of pressure on the limited supply of this market. For many, Mammoth could move from being discretionary to necessary.

On a grander economic scale there are many variables. Money has never flowed from asset class to asset class with such rapidity as we have seen in the past 10 years. I clearly see some flowing back to real estate already. It’s part of a greater diversification plan for many. There is plenty of cash on the sidelines, but if it gets nervous about inflation (or even hyperinflation) then it will likely jump into the game of hard assets. Interest rates are moving lower for those who have down payments and can qualify (what a concept). And the factors I’ve discussed ad nauseam––proximity, climate, etc.––are still here. And maybe global warming will make Mammoth the only reliable ski area in California.

Then there are personal triggers. The older you get, the more meaningful these things become. Time waits for no one, not even boomers. If the growing consensus is we’ve entered a prolonged “muddle through” economy, why muddle along with it? Talk to your orthopedic surgeon and make sure you’re good to ski and golf for the next 15 years. Then get on with it.

Meanwhile, the Mammoth brokers who have devoutly pushed the local developer’s overpriced product the last couple of years are now chasing foreclosures. Talk about triggers. Allegiance and loyalty are thrown out the window in exchange for new profits and survival. Are the local developers sitting on inventory asleep or are they just waiting for the sheriff to come knocking at the door? But I digress. I’ll work on more of these questions. So many questions, so little time.

No Locals Left Behind

This Real Estate Q&A appeared in the Labor Day weekend issue of The Sheet. Wind and cooler temperatures this weekend put everybody in "winter is coming" mindset.

Q: As relatively new Mammoth locals, we’re weighing our housing options. We can qualify for Mammoth Lakes Housing properties and have been sensing that regular rentals rates are coming down a bit. But we really would like the chance to buy something. What’s your take on opportunities for locals to buy in the next few years?

A: To answer this question we need to visit some changing market conditions. Let’s look at rents first. Residential rents are the underlying driver in the decision making process to buy or not for many people. Many locals bought homes at opportune times in the 90’s and hedged nicely against increasing rents. They bought in the whole spectrum of properties from $35K condos to fourplexes they call home.

Mammoth rents escalated significantly in the past ten years due to rising demand and increased market values. Part of it was purely economic as Mammoth bounced out of the economic depths and doldrums of the 90’s (it really couldn’t have gone much lower––some properties were “almost free”). Part of what drove the demand was the large workforce building new properties. (Why do you think so many see the Clearwater project as an immediate panacea to our local economics?) As we’ve learned it’s just a short-term phenomenon, albeit a good high. Another sneaky, but real demand driver was the creation of the Value (ski) Pass. Many new season pass holders (30,000+) figured that a seasonal rental (or ownership) was an automatic part of the program.

But while demand has been curtailed (at least for now), supply has risen on many fronts. Mammoth Lakes Housing has developed and impressive number of “affordable” units for both owners and renters. The Ski Area has built new employee housing projects and bought a bunch of condos along the way. Even the college now has housing (and very nice too!). But what has also increased the current supply is a core of owners who bought in the past few years and for whatever reason––from just needing cash flow to not being ready to re-locate or retire yet––have thrown their properties into the rental pool. And there will always be very high demand for winter long-term rentals of 4 to 8 months at premium rates. All in all, rents have become somewhat more affordable in the past 18 months, but only time will tell whether they stay there.

So what about the affordability for buyers? The good news for some (those that want to buy) is prices are coming down. But each segment is different. The bad news is that financing has tightened, but there are still loans for responsible people especially if you have a down payment. There are still good loan programs for first-time homebuyers. Right now a dozen or so foreclosures are spotting lower prices in the market. But not all of these foreclosed properties are attractive to or geared for locals. But at the right price they might be. The bigger question might be what types of properties may come available in certain prices ranges.

One segment of the market and price range that remains fairly stable and price supported is single-family homes in the $700,000 to $900,000 range. I’m not saying it’s hot like three years ago, but there are ready, willing and able buyers in that segment. But many of these owners/sellers are still holding out on higher prices. If a listed price drifts downward there is usually a buyer somewhere along the line. The point is I don’t see these homes coming down into the $200,000 to $300,000 (or less) range where they were in the mid-90’s. And if they did there would likely be investors competing to buy them for rental properties. Like many mountain resort towns, quality middle-income housing in Mammoth remains a big problem. It needs to become the new focus of subsidized housing or else the town will always have difficulty attracting new teachers, nurses (even doctors), middle managers and the like.

We are seeing some home pricing down below the $500,000 mark, but these properties usually have some serious compromises––location, age, etc. If they go much lower (say by another $100,000) I suspect there will be plenty of buyers. And I’ve been watching home values in Bishop (planning for my older age) and there are some nice homes in the mid-$300,000 range down there. A couple of big winters will always make that look attractive.

Then there’s the condominium market. Back in the mid-90’s when I sat on the Town’s Housing Advisory Committee I was intrigued by what would happen to all of the aging condos as Mammoth pursued the goal of becoming a world class destination resort (and building lots of new and modern condos). I did my own study and identified the condo projects that I felt would transition to local’s housing as opposed to remaining second-home oriented. (Remember, at the time values were at an “almost free’ state.) My study came up with approx. 2,000 condos that I felt would become more permanent resident oriented. Much of it has come to fruition in the past 12 years. A quick drive through certain parts of town and it becomes obvious. This is valuable housing stock that many resort towns would die to have. And now as values backslide, there will be new opportunities. And as has happened in the past cycles, maybe some old owners will be willing to owner finance (and maybe Barack will influence that).

The problem with some of this old condominium stock is exactly that: age. Most of these projects have or are facing large assessments for much needed capital improvements. But whether anybody realizes it or not, the second homeowners who have, or are, paying most of these assessments will help locals get into older but remodeled and well maintained housing in the future. So for prospective local buyers, good timing and analysis can make for a quality purchase. Reviewing the Homeowners Association information, including financials and reserve studies, is a boilerplate contingency in condo purchases. But having an idea of where a project is in their capital improvement program and funding is essential to the successful shopping process. Ultimately, I don’t think we’ll get back to the “almost free” values in Mammoth, but there are and will be good opportunities for local residents to buy in at affordable prices.

As we are learning in this current cycle (especially with the foreclosures), is that some people are just better renters than owners. Those people should remain renters. But as I’ve witnessed so many times before, owning one’s own home gives you a completely different attitude towards the community in so many ways. An old axiom of public planning is “home ownership makes mayors of all your citizens.” I think we can always use a few more mayors in Mammoth. Mayor Wood might even agree to that.

I Want My Screaming Deal

Broker’s Report August18––The dog days of summer find Mammoth with two months of solid and quite impressive summer tourism in the books. That success (and maybe even another decent month to go) may be the difference between some Mammoth businesses making it to next winter or not. Except for a few days of lull after the Jazz Jubilee, Mammoth has been very busy since early June. And the visitors seem glad to be here. Not bad considering the country is in a serious tourism recession.

Okay, okay. How’s real estate doing? (Smart People Are Buying Now!!) Actually, some times I wonder why I bother with all of this, but it is my odd obsession to watch all of the intricate movement in this micro-market of Mammoth. The most common thing I’m hearing these days is, “Paul, when there’s a screaming deal, call me.” I think this is really telling for so many reasons. These aren’t the same old mopes who annually come in the door for “a list.” These are folks who can buy, and buy now. They own real estate, they will own more real estate, they have credit, and they have cash and cash flow. They are the polar opposite of those getting foreclosed on. And they are not flippers.

Now this “screaming deal” phrase is a new, consistent term I’m hearing. Have I missed something? Is this some new book or phrase coined by Carleton Sheets or Robert Kiyosaki? Or is this new lingo from the surf shop or skate park? I think I know what it means. And shall I scream at you when I have the screaming deal? In my attempt to be a somewhat lucid real estate broker, I ask these folks: And just what is your criteria for this “screaming deal?” The serious ones can answer the question. But the whole point is that while the daily news blasts on about the real estate Armageddon, there are a whole bunch of REAL buyers willing to get back in. (Maybe go back to the Nov. ’07 Q&A titled Mammoth Vulture Culture.) And some Anonymous will likely refer to it as the old “dead cat bounce.”

But I’m seeing first-hand other compelling reasons why people are buying and looking for the screaming deal. These are crazy financial times. People are no longer comfortable with their money in the bank. Stocks and gold and oil make them nervous too. There remains something real about real estate. Most recognize the values may go down over the short run. Some want to hedge inflation. One client now evaluates investments based on his own “evaporation quotient” and real estate has the least “evaporation potential.” And I don’t know anybody who hasn’t taken a “write down” lately.

In the day-to-day Mammoth real estate market we are seeing buyers jumping on properties with serious price reductions. Wall St. calls it price support. The lender owned properties (REOs) are a clear example of this. The lenders are real sellers. After a few weeks with no activity at some inflated value established by a local appraiser, they get very real. And once that new price is struck there are usually multiple offers. That is price support. I reiterate; Mammoth is very much a “don’t have to sell” market. But we’re slowly discovering those who do. Some get foreclosed on, some slash the price, and some wallow in denial.

Overall, the number of owners in real trouble remains relatively small. The inventory numbers shows this––Mammoth’s inventory numbers traditionally peak around Labor Day. The total number of residential and condominium units on the MLS are on the historically average-to-low side, especially the condo numbers with large chunk of Westin Monache resale listings in the mix. But there are new listings all the time, but many listings expire and don’t come back (and they don’t end up in the public notices either). Those owners just “don’t have to sell.”

So the big question is: How strong is this apparent price support and will the market ever produce the screaming deal (or are we getting close to the screaming deal and don’t know it yet)? The market will answer this question over the coming months. Just as the inventory traditionally peaks this time of year, another cycle is about to begin. As kids go back to school, the NFL games appear on TV and ski magazines hit the mail stack, the Mammoth real estate market traditionally heats up with the anticipation of winter. And buyers will be picking their way through the inventory of motivated sellers. And soon there will be Bombardiers landing daily at Mammoth Airport (weather permitting).

Meanwhile, financing these purchases has become more difficult. (The young agents have learned that loans aren’t “automatic.” A strange concept indeed.) While more difficult, certainly not impossible. The biggest problem right now is that the various lenders are all over the board with requirements, guidelines and interest rates. Lately, it has been common to have the buyer’s loan package pulled from one lender and placed with another late in the escrow. Ah, shades of the 80’s. One recent interesting development is a lender applying the conforming limit of $729,500 “statewide” thus applying it to Mono County. What this means is that a buyer/borrower can get a very attractive loan up to the $729,500 limit. And with a steep decline in values in some market segments, this loan works for quality resale properties that are nearly new and originally sold for substantially more. (Maybe even getting closer to “screaming deal” status.)

What else? In the last Report I indicated that the Ritz/Hillside project had been postponed for a year. But now the sales office has quietly closed and all promotion has ceased. I’ve seen no announcement about their intentions, but I can’t imagine they’d send me the memo, but then again I have recently spent some time on the ocean. The Clearwater project (think the property around the Rafters) keeps pushing forward. The developer is “self funded” and seems quite motivated on moving forward as soon as possible. This is a huge project. (Google Clearwater Mammoth for details.) And it makes absolutely no sense to me, but what do I know, I’m just a lowly court jester. I guess BIG write downs are the “in” thing these days. And the Snowcreek 8 plan proceeds. It sure would be nice to see the back ten go in. Maybe with global warming we’ll have year ‘round golf in Mammoth someday. Too bad Clearwater didn’t spend their money in the Meadow.

One really promising change in Mammoth is the growth of media/news outlets. The Internet has played a huge role. Competition is accelerating all of it. Gone are the days of the single, “owned”, fluffy newspaper. The Sheet has captured some of the area’s best writers and has a solid advertising base. Sierra Wave/Benett Kessler just gets better everyday (and she knows where the bodies are buried). Newcomer Mammoth Lakes Daily News online has laid a foundation and has real potential. And the Mammoth Times is scrambling. All of this is good, really good. One of Mammoth’s shortcomings over the past couple of decades has been the lack of quality journalism––reporters who can, and have the knowledge to, ask the tough questions and dig a little (or maybe a lot). I applaud this. Hopefully, it will all work to make Mammoth and the Eastern Sierra an even better place.

And I’ve been receiving inquiries and comments about MMSA CEO Rusty Gregory’s new vision for the gateway to town, the “town square”, making Main St. a two-lane road, gondola stations throughout town, and a potential land trade that would create a “Central Park” for Mammoth locals. Is that smoke I smell? It makes me remember all the discussion about how food delivery trucks wouldn’t be clogging the streets around the Village (and hence no need for loading docks) because the restaurants would all be working out of central commissary located somewhere else in town. Yeah right. And how does this grandiose plan put more profits into the Ski Area’s coffers? (After all, that is the ONLY plan.) People think Rusty should try to get the Village gondola past the Canyon Lodge parking lot before trying to get it to the VONS parking lot. Yes, I think that is smoke I smell. And is that a mirror? My guess is that Rusty wants all of us distracted and dreaming again while he’s trying to acquire the crown jewels. Does anybody know many acres the Forest Service is going to swap him at the Main Lodge in the latest deal? Maybe some of our edgy journalists can discuss this our new Inyo Forest Supervisor.

And finally, Mammoth remains a most interesting real estate market. The oft quoted real estate phrase “it’s different here” has become the public laughing stock in local markets throughout the country. As we’ve seen in Mammoth, no market is insulated from this downturn. Values in many segments have experienced substantial decline. But name a place that is so beautiful, so temperate, so protected, and so unpretentious yet with so many recreational opportunities, so little approximate competition, and with massive demographics and wealth within a half-day’s drive by car. Well, go ahead and name one. And over the years I’ve watched many long-time locals frustratingly try to find an equal place to relocate to (yes, after 30+ winters the snow does get to be tiresome). Let’s face it, just being here is a screaming deal.

Zoned for Tourism & the Holy Spirit

The latest edition of Mammoth Real Estate Q&A appeared in this last weekend's edition of The Sheet. This last weekend was BluesaPalooza, an event that has become so impressive with over 60 microbrewers offering tastings of their latest brew and world class headliner music. Major attendance and deservedly so.

Q: We enjoyed your perspective on doing business in Mammoth. We’ve been second homeowners since the early 90’s and watched the community struggle through the last recession. As we recall many thing were discussed and planned during those hard times to try to make Mammoth better. What things stand out in your mind that didn’t come to fruition?

A: Recently I’ve heard more and more local residents say how “bad” things are in Mammoth. Well, turn on the laugh track for this reality TV show. The early and mid-90’s were challenging to say the least and they didn’t come on the heels of a prolonged era of prosperity, mania, hyperbole, speculation and euphoria like our present time. But when it all went in the tank back then locals didn’t have payments on $500K condos, $10K snowmobiles and lavish water ski boats. Most of us were used to just getting by, but life was full of simple pleasures.

That era was marked by a combination of drought (with no snowmaking), then so much snow that the snow removal bills were crippling, and a deep California recession with high unemployment. The County had a difficult time paying for paramedics––the most basic, primary service to provide. There wasn’t much else. But the pain of that era produced meaningful discussion and planning about the future of Mammoth (and Mammoth was just a newly incorporated Town). Then Intrawest showed up to help us execute the “long-term” goals of the beautiful vision we had created.

Many wonderful things came from all of that work. Far too many to list––from better roads and snow removal to storm drains, bike paths and parks, new schools, and an expanded hospital, a new library and a logical visitor’s center. And on and on, and not all of them are physical, tangible things--––many of the things we just take for granted today.

But what stands out of those that didn’t come to fruition? The first for me would be an organized community buy-in to tourism related service. In the winter of 1991 Rusty Gregory took a handful of public officials to Whistler to study the growing resort. We met with a variety of folks and it was all very enlightening. The most impressive take-away for me was their Ambassador program and the effect it had on the functioning of––and attitude within––the resort. I remember staying up late one night with then ML Planning Director Randy Mellinger and taking our own beer tour. Later on we decided to go out and interview employees who had been through the program. Most were just kids that were cleaning up after a long day of business or doing the graveyard shift in a hotel. I was very impressed and inspired by their responses. (Google “Whistler Spirit Program” and you can see how it has evolved.)

As the vision of the college in Mammoth advanced, many of us saw the opportunity to marry the college to community-wide service education. Some newly arrived Intrawest officials envisioned the college at Mammoth as the “hub of mountain resort community service education.” But it never happened. And it needs to happen today more than ever. A company like Patina can’t execute without a culture of service in place. Today, we have a Tourism Commission trying to influence zoning, condo versus hotel, to improve occupancy. This kind of thing makes me chuckle. Maybe I should be the new cardiologist at the hospital. Trust me, the development pro formas and the investment bankers in the next cycle (?) will dictate what the zoning will be. Go back to 1996-7 for a history lesson. Instead, maybe the Tourism Commission should be focusing on bringing the Ski Resort and the Chamber of Commerce together and finding some way to emulate Whistler’s Spirit Program. Maybe there’s a reason Whistler is always #1 in all the ski resort visitor’s polls. Imitating success can be a good idea.

My second disappointing stand out has to do with developer relations and development agreements. We were coached on much of this during this era. (FYI––I was the first and only Planning Commissioner ever ousted on “term limits”--––in June of 1998. It ended up being a good thing because my business boomed and I wouldn’t have had the time and I would have ultimately had many conflicts of interest. But the Council made it clear my services weren’t wanted any more.) Today’s quandary stems from Mammoth’s leadership falling on their face in the development agreement negotiations with Intrawest. They left an obscene amount of money on the table. So today’s Council is trying to recover that loss by getting it out of the new developers and property owners. The Council has no choice but to buckle at some point in the future. The opportunity to recoup that money is long lost. The community of Mammoth simply needs to be smarter about dealing with developers in the future. It’s a serious leadership issue. And relying on bogus consultants isn’t the answer. As for me, I was told to go fishing, and I am (really).

A small, ironic stand out: we made another run at establishing a central reservation system in Mammoth. We even had Laurie Vance come down from Whistler to spearhead it. She almost got run out of town. Today, we’re more decentralized and fragmented than ever with condo hotel projects and Internet marketing like VRBO.com. And almost everyday I hear someone who owns (or wants to own) a single-family home talking about nightly rentals. Burying ones head in the sand is such a time proven way to solve problems. But anybody want to bet that government economics will play a hand?

And finally, the beaten dead horse: the Mammoth Airport. Without all the litigation we could have mature air service by now. But we’re 5 to 10 years behind. Now we are at the dawn of making it happen. The periphery services CANNOT fall down if this is going to be the foundation we’re going to build on. Are they in place? Will we be ready? God only knows. But I don’t think we get a second chance.

In the end there’s plenty of good and bad, but all of the delays and history of litigation impresses one thing upon me. We have the Sierra Club and its battery of attorneys and lobbyists out to do their job. We have the LADWP and Metropolitan Water District’s interests to be met. We are surrounded by Forest Service land and their bureaucratic malaise. We have other groups like the Mono Lake Committee and the Mammoth Advocates. And throw in the small but powerful John Wayne-esque Department of Fish and Game. We have more than enough entities to keep our area undeveloped beyond the private land masses and keep the rest as pristine as possible. And that is exactly what will keep this place so special and desirable. Now if we can keep the air pollution from China from coming across the Pacific and affecting us. And how about a Nordstrom in the Village?

Go Westin Young Man

Some of the folks who regularly quiz me about Mammoth real estate think I have lost my mind. When prodding me for ideas about “opportunities” I have recently suggested watching the Westin Monache condo hotel project. What? (Paul HAS lost his mind!) But I didn’t say start buying––I said start watching. Here’s what I see and potentially foresee.

First, from what I can see, feel and hear, the Monache units and project are superior to anything built in the Village or at Eagle base. Some of the units, especially on the upper floors, have incredible views and settings and the larger (especially end) units have a wonderful feel inside. As I have pointed out in the past this is the first true hotel-like structure in Mammoth. And I underline structure. I didn’t say hotel-appearing. Sorry to JSL, SS, LH, WML and Grand Sierra. (Oh, and special condolences to the Mammoth Mountain Inn.) The structure--––the building––has real soundproofing, real hotel-like ventilation and real hotel-like amenities including a restaurant and bar under roof. Brands and licenses (like Westin) can come and go but the foundation (I like intending puns) of the project is the structure––the most impressive in all of Mammoth––and the amenities and mechanical systems. The building was built to “Westin standards” and that is a better start than all the rest. And the location to the Village Gondola is important, but expect a special assessment for an escalator in the future.

With all that said, let’s look at the impacts of the current financial environment. Financing for the buyers of these condo hotel properties has tightened substantially––meaning larger down payments, higher interest rates and stricter requirements (including cash in the bank) on the borrower. Simply, many potential buyers can’t, or won’t, make the cut. With more and more foreclosures hitting the Village condo hotel units, I wouldn’t expect this lending criteria to change anytime soon. The whole condo hotel industry has internationally come under far greater scrutiny. Projects with top brands in fabulous locations in places like Poipu, Playa del Whatever, Napa, The Strip, etc. that were originally a “slam dunk” are languishing on the market. (Maybe Barack has a plan for all this pain but don’t count on it.) Furthermore, most buyers were counting on all the rental revenue that was promised to help pay the mortgage. Inevitably, this whole market will soften including units at the Westin Monache. Already we have resale units listed for sale at the Monache at prices less than what the owners paid less than a year ago.

Now comes the other, and maybe more important, market condition founded in the current financial environment--––the diminished availability of construction financing, especially for condo hotel projects that are now becoming just short of the plague. (And forget financing for a true hotel in Mammoth––zip, zilch, nada, never going to happen in my lifetime.) Therefore a project similar to the Westin’s quality just isn’t going to happen for many years. (Okay, time out. I’m fully aware of the proposed Ritz-Carlton Residences in Mammoth. I really hope the guys from Texas get this built. I’m pulling for them because if they do, and it’s a hit, I’ll be retiring to my panga in Zihuatanejo right about the time my AARP membership starts. But I know too many old, tired and retired real estate brokers from Mammoth who are wore-out from the decades of development delusions. Ten years ago the lodge at Chair 15 was “ready to go” and I’m still waiting for the train around Lodestar and I keep the map of the Sherwin Bowl Ski Area on the wall just for humility’s sake. I’m still astonished the Village Gondola got built, but then again it might have been the key chess piece in a big con game.)

So here we are. Even if the Ritz started tomorrow (and they’re not) these projects are 3 years in the construction. And I won’t (shouldn’t) belabor the environment of frustration that the Town government has created for development. Forget the fees (trying to play catch-up for letting Intrawest skate), the ambiguous planning bureaucracy is frustrating even the most seasoned players. Few are in the mood to dance with this partner, and those that do are desperately hoping to get entitlements so THEY can find a buyer when the economy turns.

I’m plotting the future graphs––prices come down, rental revenue comes up, real competition is far off on the horizon, but how far off?, what are the re-sales doing?, do we still have commercial air service and if so is it growing? And along the way I really want to see how the Monache Homeowners Association is doing. Is it functioning (financially) as projected? (Anybody want to place bets? It’s all a matter of degrees.) Are propane costs killing it? Are labor costs killing it? Does Westin want to stick around? Are the restaurant and bar viable? Are there any construction defects? Lawsuits? This project is all new territory in the Mammoth condo world. It takes a little time to sort this stuff out. These are all factors that will play into “buy” signal or not––and the opportunity timing.

And what about all the unsold units (60+/-)? Rumor has it that some entity bought all the remaining unsold units in a bulk discount purchase. Sounds par for the course for Intrawest (cut and run?). These would make prime units for packaging with air service and lift tickets (especially since the individual owners find it unsavory to take a financial beating while their units take the physical beating). But that is all conjecture on my part. Or maybe there is going to be a new miracle marketing machine to sell this leftover inventory. The quandary are the 40 +/- resale units already in the MammothMLS(.com) that were just purchased in the last year. Or maybe there some hedge fund that is going to offer some trick financing on these units. Stay tuned.

But regardless, the Monache will be one to watch in the future for opportunities. Cherry picking one of the sweet suites at the opportune time may be a solid investment as well as a very nice lifestyle play. Meanwhile, it has been a simply wonderful summer here in Mammoth with great weather, no crushing crowds and adequate time to play.

Mammoth Foreclosures 3.0––Let The Games Begin.

The past few weeks have become more and more exciting in the Mammoth Foreclosure realm. From attending Trustee’s Sales (aka auctions), to “cash-for-keys” negotiations between lenders and former owners and tenants, to sometimes disgusting “trash-outs”, to seeing happy new owners settling into a once-foreclosed property, there are few dull moments. And the paperwork, endless forms, and seller confusion and delays continue. But all of this action reveals critical insight into the Mammoth real estate market conditions.

I’ve come to the conclusion (duh Paul!) that today’s foreclosures in Mammoth are far less a statement of the current local economic and real estate condition and much more the result of the give-away lending (and consequent gambling) and the market hyperbole of the 2005–06 era. And go figure that many of those being foreclosed on in Mammoth today were active (and likely newly minted) in the mortgage business in Southern California at the time they purchased––and many of the loans were acquired in other people’s names!

While the foreclosure pipeline is filling here in Mammoth and Mono County, the overall numbers still remain on the low side and with no major concentrations in any single market segment. And the overall inventory in Mammoth remains steady. (And if you follow my theory of “scrubbing” the inventory data, the inventory could actually be considered on the low side, and with plenty of mediocrity and overpricing still in the mix.)

While much of our work has been dealing with the “unfortunate” side of these foreclosures––the personal soap operas and victim theatrics (we haven’t seen a true “hardship” case so far), the myriad of property management concerns, preparing the properties for the market (all referred around here as Tasks, Tasks, Tasks), etc., our thinking is now turning towards making the buying process more explainable and understandable to the interested buyers. While the process remains similar to buying any other real estate in Mammoth, there are some real differences, and not understanding them can make-or-break a transaction.

Like I have stated in previous Foreclosure columns, the sellers of the REOs are unemotional and non-delusional. They have no clue about The Airport and new air service, Starwood Capital, the new logo or branding, or the latest important (and meaningless) press release. It’s all business, and definitely no monkey business. But they do have policies and guidelines (that vary greatly) and they, sooner or later, become motivated sellers. And what we have experienced is some frustration on the behalf of the buyers who are looking to tie these properties up. Most of these REOs/foreclosed properties are being handled by asset managers who are inundated with files and work––to the point of being overwhelmed. Almost all communication is electronic with much of it in fill-in-the-blank spreadsheet format. Not exactly like presenting an offer to Mr. Seller at the proverbial dining room table. And much of this communication is happening at odd hours because asset managers are working late or from home or maybe even from a foreign country.

And the seller’s motivation is a moving target as well. In our present national economic environment some of these sellers are seriously motivated to get cash back on their books as quickly as possible (imagine that)––so they are pricing very aggressively. (We currently have an Indy Mac REO--––and according to a memo this morning it is business as usual in their department.) And some of these lenders don’t appear to really care and are displaying patience with the market before they slash the price. Some are sitting on unrealistic and lagging appraisals. Some are trying their best to make the next loan (with incentives) for the new buyer. And again, some are just so backlogged that everything seems to be lost in cyberspace. And just when we think all is lost––voila!––it all gets resolved.

Ultimately, buyers looking to grab one of these REOs need to be counseled on the variables in the process––not necessarily minefields but the wild cards. Buyers get to complete all the normal due diligence. But when making offers they need to understand the reasons for things instead of being set up for excuses. And hopefully the reward for their patience is a very good buy and the start on years of enjoyment here in the Sierra. Enough for now, I’m heading up to the Village to check out a 2 bedroom that was foreclosed on last week.

Success Leaves Clues––and the Quickbooks Stare

June 2008 Mammoth Real Estate Q&A as it appeared in this week's The Sheet. The smoke has cleared out of Mammoth and the Motocross crowd is exiting. Looks like Mammoth is ready to settle into summer.

Q: With all the reports of businesses closing in Mammoth, and it seems like the other half are for sale, what is going on? It’s not just the Village businesses. Over the years we’ve watched the businesses come and go, some sooner, some later. Mammoth appears to be a great place to own a small business, why is it so transient?

A: Sometimes I have to laugh when I get the “you’re in real estate, what do you know about business?” question from certain people. (And in the real estate business there is nothing worse than trying to sell somebody else’s brilliant business that is a black hole and yet they think it is so “valuable.”) Between drinking beer in college I took plenty of business classes and I have the diploma to prove it. But a diploma in business is glorified toilet paper compared to experience. Before getting into real estate brokerage in my mid-20s, I was fired from, or quit, plenty of jobs. But I always took away something valuable from each one.

Early on in my Mammoth life I was mentored by many local business people. They didn’t necessarily know it, but I was watching what they were doing and trying to make some correlation between success and failure. And this was the early 80’s, and surprise surprise––there were lots of businesses going under. It was great time to watch and learn. One of my favorite mentors was Sam Walker (of Whiskey Creek, Angels, Mammoth Brewing, etc.) and it pissed me off he wouldn’t hire me, but he probably knew better.

Back then the first thing that was so obvious was that Mammoth is a seasonal economy––a very seasonal economy. In the 80’s it was worse than today because summer was completely dead. Another interesting phenomenon I noticed, and is even truer today, is that once you are a “Mammoth business owner” it means you have to go out and buy a big fancy truck. It’s a “business expense” after all. But those payments are every month, and you’re only going to make money for four months. Mammoth teaches you to make hay when the sun is shining and stack it up because you’re going to need it later in the year. Back then I first learned what a “Mammoth Millionaire” was––somebody who came with $5M and was in business here––and only had $1M left. Appearances can be very deceiving.

In the winter of 1983 I worked at a place called The Boulangerie. It was located next to the new Safeway (now VONS) where the kitchen/bath store is. It was so incredibly ahead of the times––a bakery/bistro/hangout with display cases of wonderful food, espressos and fine coffee (what was an espresso?), over a hundred colorful microbrew beers in a wall of reach-in glass-doored refrigerators, sit-down lunch and dinner (people clamored for the chicken breast Dijonaise) and wine tasting on Saturday night while folks waited for their tables. (Sorry, no wi-fi, but plenty of newspapers and other interesting things to read.) The place cranked. It was alive––like a Starbucks on steroids. The owner was almost always there––like an orchestra leader dressed in baker whites. He is imprinted in my mind.

But what happened? He hired me because I was an old Charthouse guy with some experience. He asked me to help him run the business more efficiently. What I discovered was a nightmare. He had no sense of management––calculating food costs, internal control matters, personnel training, etc. He had none of it in place. He had five waiters working out of one cash drawer! No wonder it came up short every night. In his dry storage room he had large bags of expensive imported spices. I can still see him walking in and grabbing a big handful and spilling half of it on the floor only to be swept up at the end of the day and thrown in the trash. On and on it went. I tried to explain to him what I was seeing and how a finely tuned corporate restaurant dealt with it. He would have nothing to do with it. He thought volume would overcome the deficiencies. I left after a couple of months, and he was out of business within a year. He was one of my mentors.

As a broker, I’ve listened to the dreams, the concepts, the plans of wanna-be business people. I’ve asked a lot of questions. Some want to buy a business, and some want to start something fantastic. Some want a franchise. I’ve negotiated purchases and I’ve negotiated leases for them (no thanks, anymore). A few years ago I was in a meeting with some folks that wanted to buy a small business. They had reasonable qualifications and plenty of enthusiasm. I asked them if they were familiar with the accounting software Quickbooks. I got a blank stare. I knew what would happen when they bought the business––and it did. I remember my first college Accounting class and the thick textbook’s cover––Accounting, The Basis For Business Decisions. You could glean the greatest value from that book by ripping the cover off and throwing the book in the trash––but keep the cover in front of you the rest of your life.

Another anecdote that stands out for me––Mammoth Monthly. I had sold George and Jean Shirk a condo a few years before and they came to me with their business plan for Mammoth Monthly. Both were immensely qualified in the “real” world to pull this off. And the breadth of their homework was like nothing I had ever seen––work by top-notch consultants, realistic projections, detailed distribution plans, etc. (Probably far greater research than for some of the recent real estate developer’s acquisitions in Mammoth.) George had written a year’s worth of stories before publishing the first issue. Amazing preparation. They “bootstrapped” much of their operation (which is one of the keys to success here in Mammoth). After a great start a few years ago, today they are no longer in business. What happened? A big part of it might be they just couldn’t take small town, culturally deprived living after so many years living in the Bay area. That happens too.

Another thing that happens is that people discover owning a business is a huge responsibility (who knew?). And in a resort town the recreational opportunities are always pulling like an addiction on an addict. It’s a big part of the balancing act. Some owners are better at it than others. Some lose control. I’ve learned to be satisfied with “cherry picking”––skiing or riding on the optimal days (like when you know there’s great wind blown and no crowd). Some have enough “scale” that they can hire people to do most of the work--(or they have enough partners to dilute the profits). And some are Mammoth Millionaires. But survival is often knowing when to put business before pleasure––and not being a workaholic/burnout either. It helps to really like what you do. And don’t forget the commute is often less than a couple of miles.

Over the years I’ve spoken to representatives of many national companies taking a peek at Mammoth. Ultimately, there isn’t sufficient demographics or “traffic counts” to meet their criteria. Call it the Trader Joes Effect. Simply, there are too many better places with a higher likelihood for success to warrant the investment of dollars and energy. They aren’t emotional. Lifestyle or “quality of life” has nothing to do with it. For them it’s all about the numbers. That factor is what ultimately breaks so many Mammoth businesses. You better understand it going in. And high expenses, especially rents, are the first killer. Oh, and the big fancy truck too.

Broker's Report, June 16, 2008

Broker’s Report June 16––I’ve got plenty to say this time around so bear with me. I’ll try to be concise. I’ll cover ground including the very interesting current market conditions, the ongoing development planning in Mammoth, the anticipated effect (my guess) of escalating gas prices on Mammoth, the latest and perhaps desperate maneuvers by local real estate “professionals” that consumers and customers should know about, and some recent comments made by Starwood Capital’s CEO Barry Sternlicht. Stay with me.

Mammoth real estate activity in the past 45 days has made it clear there are real buyers for properties in almost all segments of the market if the prices are down. How far down? In some segments that means up to 25 to 40 percent off of the peak asking prices. I said asking prices. As I’ve alluded to in the past, “asking prices” and seller’s expectations became delusional. We’re now finding what the market will bear. But in other segments the buyers are becoming serious with only a 5 to 10 percent cut from the peak.

Just some examples; Most of the REO (lender owned/foreclosed) properties are selling. Last week we listed a REO 1 bedroom + small loft/1 bath at Sierra Manors at $149,000. This is no cream puff property––it needs plenty of work and is located in a late 60’s built project. But there was blood in the water. The property probably could have been sold 25 times. Another example; an unimproved Bluffs lot seller became seriously motivated this week and offered a special price if a buyer could close by July 1. The seller was offering a 25 percent discount off the last comparable sale. Again, blood in the water.

In the last 30 days we’ve seen high-end residential sales (my office) at $3.4M, $2.5M, $1.5M, and others in the $1.M to $1.3M. These buyers were all buying at below replacement cost. (And the Town is trying to raise permit fees again––close to the highest in the country.) And there are plenty of people milling around looking at real estate. Every day I see people in nice cars slowly driving down my street looking, pointing, checking the map. The high-end interest is what impresses me. I can only conclude that the affluent continue to park money in Mammoth real estate as a diversification of their assets (and is this a potential hedge on inflation?). I also believe that the Boomer effect continues and the mountain lifestyle is becoming increasingly appealing. I’m also hearing the term “safe haven” used more and more––and they’re not using it in financial terms.

The local real estate inventory is staying on the low side. This is normally the time of year we see inventory increasing. We may be seeing what I refer to as “the Aspen effect” pertaining to real estate. I’ve been saying this is very much a “don’t have to sell marketplace.” Plenty of listings are expiring and not coming back on the market. Many sellers are indifferent. This is typical of the market in Aspen as recently reported––very few owners have real pressure to sell, and when they do decide to sell, they price it appropriately and liquidate. The Mammoth market is appearing more and more like that. Of course, the gamblers of past couple of years who financed to the hilt are in an entirely different boat. They are just getting foreclosed on (or are trying short sales first) and these REO properties are finding new owners at nice discounts.

Meanwhile, the local papers continue to be filled with articles about planning and development meetings. There seems to be a strange clinging-on to false hope. New project inventory mostly sits. Commercial vacancies abound. Many Town employees are once again trying to justify their jobs and the developers are trying to justify that they still have viable projects, or that there is some magic bullet. (BTW, if you haven’t heard, The Ritz has been “postponed” for a year for a variety of “reasons.”) These meetings are filled with “blue ribbon” participants and “stakeholders” and even some obvious shills. It’s entertaining for a few minutes but I spent endless hours in these types of meetings in the 90’s and everybody takes it all so serious. And in the end all of the earnest planning gets shoved aside when corporate and individual greed brings the hired guns to town to intimidate the weak elected officials. Most of this ongoing discussion is an exercise in futility––the Wall St. money to back these projects is gone. And even if it existed, the development execution of the past few years (and the lack of buyer interest in these projects) has been so poor that anyone can see that that risk is too high and the cake is spoiled. Plan it all you want but nothing is going to happen without some economic viability. Or until the collective buyer mindset forgets. I’m really glad these people want to spend all this time in these meetings, I’m going to spend my time outside. Maybe they should hold more of these meetings outside.

Okay, so how will the price of gas affect Mammoth? Many fear the exorbitant prices will destroy tourism. But Mammoth remains on the affordable side of the vacation spectrum. Some speculate that travelers won’t go great distances but will still travel, and Mammoth is within the range they will travel to. Maybe visitors will stay longer and stay more centralized and enjoy the amenities within the close proximity of their destination. Mammoth can certainly fulfill that, especially in summer. Maybe Mammoth visitors will rely less on motorized sports and get on their bikes and on the trails. I’ve already heard reports of more European visitors this spring, and everything is “on sale” for them. And maybe, just maybe, lots of second homeowners who rarely use their properties will actually come and spend some time in Mammoth rather than take expensive vacations. They might even re-discover why they own in Mammoth in the first place.

I’ll title the next paragraphs “Consumer Protection.” The local real estate community becomes more entertaining all the time. It has now become more important for agents to answer their phones so their clients don’t think they’re at their second job. And the July 1 “wireless” law means agents won’t be seen babbling away with their cell phones to their ears as they’re driving down the street. But some are beginning to show what I think is desperation. Recently, one unsold new project reported four “sales”. They were actually the developer partners buying units from themselves with conventional financing. Now this might make sense to get rid of some of the higher construction loan interest rates. But the listing agents were ecstatic about these “sales” that now “represent comparables” to be used “in your daily marketing and sales activities.” Buyer beware (please). If you are a potential buyer in this market in this price range or in this project you will be told about these “sales”.

And now we have the largest brokerage representing the new and near-new developments in Mammoth deciding they should be representing foreclosures. Does that mean they’re throwing in the towel on dozens and dozens of the developer’s (Intrawest) unsold (and getting stale) properties? And what about the multitude of clients they already sold (and earned hefty commissions on) and have their properties listed (and can’t sell)? They hyped and sold Village properties and now they want the REO listings that will crush their client’s values. I guess the new strategy is––throw your old clients under the bus so you can get new ones. (FYI––I’ve never sold a Village unit.) Sorry, I just have a thing for “consumer protection”. As a kid I remember hearing, “Son, you just can’t talk out both sides of your mouth.” Today, maybe it’s okay as long as you don’t do it at the same time.

And then some great quotes from Mr. Sternlicht from the past couple of weeks. From the recent New York 2008 hotel conference;

“Mexico is the new force. It is a huge destination. People don’t get sick there anymore. From the U.S., we are in the same time zone. The weak dollar makes Mexico a bargain. All this makes Mexico big.” Hey Barry! Mammoth is in the same time zone and people don’t get sick here either. And all the businesses are discounting because everybody is hurting. And you already own us! Wassup?

Or, “There is no need for another hotel, but there is a need for another experience.” Oh, so now we know why the “1” won’t be built. So what is the “another experience” you have planned for Mammoth? I can’t wait. Sounds like more trout and rice for the local masses.

And then Mr. Sternlicht is quoted in the Wall St. Journal that “cheap airline tickets have inadvertently subsidized the hotel industry.” Well, isn’t that timely? I’m sure all those condo hotel owners in the Village just can’t wait for your Ski Area to help subsidize cheap airline tickets to fill their properties with quality rentals at high rates (as promised by their agents). Don’t hold your breaths.

So the local election is over and we will have a new Assessor with real experience––and a changed Town Council too. But Mammoth as a whole is still void of any real leadership. Don’t expect that to change at anytime in the future. But for now summer weather has arrived, the Memorial Day weekend moisture is greening things up nicely, flowers are blooming, the deer are moving in, the Creek is rushing, so see ya!

Assessing The Assessor

The May Real Estate Q&A appeared in this last weekend's The Sheet. This issue of The Sheet was predominately focused on the June 3 election, so the Q&A fit in well. Obviously, second homeowners won't be voting for the Mono County Assessor's position, but I think this information is valuable nonetheless.

Q: We noticed on your blog site that you are a member of the Mono County (Property Tax) Assessment Appeals Board. We’ve also been watching the competition for the upcoming Assessor’s election and wondered what input you might have since you should have some interesting insight into the office and department?

A: I’ve sat on the Board for the past 4 years and have served under the two previous Assessors. And yes, it has been enlightening. As I drive around the town and county and see the “John/Jane Doe for Assessor” signs what really comes to my mind is this: Does the average man on the street really have a clue what this is all about? Oh sure, maybe they have followed some of the scandalous, recent past, but do they have any understanding about what they are voting for? And why are all these people running for this position anyway? And even if somebody has read all the campaign rhetoric by the candidates, why is the “trust” and “fairness” and “integrity” such a big deal? (Hell, the Mammoth Advocates didn’t even take a position!)

So pay attention. The primary reason all these wonderful, caring citizens are chasing this position is because it is a great paying job in the eastern high sierra where great paying jobs are few and far between. And you barely have to qualify for the job. The 2007 Mono County budget shows the Assessor’s office receives close to $1.5 million in wages and benefits with the Assessor’s wages at around $130,000 per year. And yes, there’s an assistant assessor, staff appraisers, staff, etc. And yes, the job is critical to the County––property tax is the core revenue generator for county services. But with the Assessor as an elected position, I even joked some months ago that I would run knowing the economic value of the job. So go ahead and write my name in, although being a bureaucrat would drive me to drink.

Our current candidates are all honorable and I’ve decided it is probably not appropriate for me to endorse any candidate in particular. Instead there are a few of things I’ve learned since being on the Board that I think the public should consider when selecting.

Appraisal Experience. The Assessors office is founded on the real estate appraisal process. Real estate appraisal is more of an art than a science. And even though it is suppose to be objective, it can be very subjective. Today, some folks think they can just Zillow the property and get the answer. Yeah right. (Right now local appraisers can’t even agree if we’re in a “stable” or “declining” market. I call it “conflicted”.) And appraising/assessing commercial property in Mono County is a snap––there are so many “like comparables.” Even worse you have crazy things like people building $20 million homes and hiring a battery of attorneys and private appraisers to argue a lower valuation. Or even worse you have private equity/hedge fund bullies that come and go and try to dance around things. So why would we want to elect someone to the office that has no appraisal/assessment background? But it could happen.

California Property Tax Law and Procedure. Then comes the reams of property tax law in the State of California that sits about 10 inches high on my desk (well, actually under my desk in a box). One real estate attorney told me that it is too much to specialize in––you have to specialize in a particular part of it. Mono County, being a rural county without a large volume of appeals, is represented in Appeals hearings by such a specialized attorney. That’s all he does is represent rural counties in appeals. And I’m sure he does plenty homework on each case. But it is critical that the Assessor has a solid knowledge of the law and procedure. That takes years of day-to-day experience. There’s no cramming for this test.

Communication With The Public. I’ve observed many property owners question their assessed values. Few actually appeal and fewer make it to a hearing. I always recommend people call the office for clarification and questions. I’ve seen things worked out. From what I have seen the Assessor’s office does an excellent job in sitting down with the (usually naïve) property owner and explaining the process and why they came up with the number. And granted, there are legitimate Appeals. But communicating with the public in a professional manner takes knowledge of the subject––so the Assessor’s office needs to have that skill level from the top to the bottom. And the office always needs to be able to defer the highest authority––the Assessor.

There are other skills a quality Assessor should have in my opinion. Proven administrative and leadership skills should be obvious. Local knowledge is important too. And now, “Prop. 8” applications—the request for reduced assessments––will be on the rise and it is critical those are handled skillfully.

Mono County is a diverse county with diverse properties and with even more diverse property owners. The State requirement that the voters of Mono County elect the Assessor means that it is one of the last administrative positions in Mono County left up to the voters. We only have ourselves to blame for the past. We have a chance to move one more administrative office away from the “good ‘ol boy” days of Mono County. Please vote with your brain.

Flying Through Manure

Ahhh… the Mammoth Airport. Unfortunately, asking me to “cut through the crap” on the Airport issue brings me back full circle to many of my past topics and rants. But of course that’s why they were topics and rants to begin with.

I often receive requests from people who want to come and speak at my office meetings (talk about having to cut through crap!). So if I allow them, my request/demand is “tell us something we don’t know”. Often times there is dead silence. (You mean I just can’t deliver the same old canned babbling? I have to think? Well yes, otherwise you’re wasting our time.) So dear reader, I’ll try not to waste your time.

The Mammoth Airport (I skip the silly /Yosemite part) is now a forefront topic again. Many of the obstacles of the past have been hurdled in the past 30 days. There’s plenty of recent press regarding both the Hot Creek lawsuit and more rumbling about the possibility of regular air service starting next winter, so I won’t belabor the details. And out of manure can grow delicious fruits, vegetables and beautiful flowers. But it takes hard work and care. Yes, as I post this, the runway is being torn up and redone. Based on all the new survey sticks it looks like they might even try to make it look less like a camel’s back. Grind it up, level it out, lay it back down. And with all the latest aviation doodads. Work completed in three months and rumored to be contracted under budget. And a new terminal building too. Almost all of it paid for by FAA monies.

So will there be anybody to use it, and soon? I’ll get to that.

The other noisemaker has been a jury award of $30 million to Hot Creek Development. The judgment is against the Town of Mammoth Lakes. Nice hullabaloo this is. Every drunk in town is celebrating. Everyone else is disgusted. But is anybody paying attention to the news that a similar lawsuit was filed the week after the trial decision––against Mammoth Mountain Ski Area and MMSA CEO Rusty Gregory personally? Rusty dismissed it and was reported as saying he’d be saving his pennies for that one. Well I’m no lawyer but something funny is going on here. The judge was painted by the press and the Town as steering the jury into this decision and now we find out that the judge apparently separated the cases/defendants a long time ago.

The Town’s case is likely to go to Appeal. The case against MMSA/CEO is just starting up (they may have to try that in another state). Some insurance companies are surely to be involved. And it looks like the word “settlement” will become larger as time goes on.

But the question I ask is––How can there be a $30 million award for a project that now can’t (or shouldn’t) be built anyway and isn’t economically viable? (That’s my opinion.) If we can’t sell beautiful Westin units or swanky fractional Club shares right next to the Gondola, who the hell is going to buy anything down at the airport? Yeah, the view is spectacular. But have you ever lived or spent considerable time next to an airport? And you would be thankful for the breeze when sitting poolside, otherwise the no-see-ums will eat you alive.

So what’s this big award about when circumstances may be saving these guys from making the same mistake Tallus, 80/50, Westin, and others have already made. And as the buyer’s financing for these types of units is evaporating––except for the highest quality buyers with substantial down payments––it makes the project less viable every day. And don’t expect that to change after the Election, or the Olympics, or whatever delusional trigger some folks believe is soon to come to make it all better. So this saga is far from over. And they’ll likely be cutting through some serious hubris before it’s all over. This could actually make for some good reality TV. Stay tuned.

So now back to the possibility of regular air service. The FAA has issued their “Record of Decision”, blah, blah, blah…So the door was opened just the other day for those final negotiations to occur. So will the Powers-That-Be make it happen? God knows they’ve had long enough to talk about it. All it takes is some subsidy. But oddly the PTB have been nothing but momentum killers since shortly after Starwood became owners of the Ski Area two years ago. (Or is some new ownership/management on the Horizon?) And I will admit that my common sense thinking hasn’t made much sense lately.

But here is what I do know. The condo hotel development ship is sinking fast in almost every market in the country. Mammoth’s best project to date, the Westin Monache, is in the real estate toilet (as proven by the volume of buyer defaults, inventory and lack of resales). Village units are now heading into foreclosure and subsequently softening prices to levels below what the units originally sold for. The ship is listing hard here in Mammoth. Meanwhile, developers have paid vast sums for raw land with condo hotel land use designation. This ship is in desperate need of being righted. Condo hotel units are primarily designed for “fly-in” tourism. (I’ve discussed this ad nauseam.) Here is the chance to get “one of the pieces of the pie” (as Rusty always referred to them) right to help buoy the ship. A few years of seasoned, regular air service is critical to the future marketing of high-end condo hotel product (amongst other things).

If all the major landholders don’t work to make this happen, the value of their land and future developments goes right down the tubes. They might as well call their bankers and give them the bad news. (Of course, maybe a few local real estate agents could work out a nifty short sale for them.) So there’s the crux of the matter. Either it happens, and is sustained, or the future of condo hotel development in Mammoth will fall into a state of depression. But the bankers can always take the beating, account for the “write-down”, and in the 2015 Mammoth General Plan these parcels can morph into some other vision––maybe more affordable housing––since we’ll all need it. Such is the state high finance today.

And finally, another less important but awkward situation looms. The FBO––fixed base operator (Hot Creek)––at the Airport has a judgment against the owner of the airport (the Town) and is now suing the major party to the subsidy (MMSA) and we’re all suppose to get along and play nice. When will the reality TV people show up? And does Rusty get to keep his one-of-kind VIP parking spot on the tarmac? Hell, that’ll cost a few hundred grand in attorney’s fees alone. So readers, chuckle all that up over a few beers.

Mammoth Real Estate Q&A, April 2008

This Real Estate Q&A appeared in this last weekend's issue of The Sheet under the headline "Maybe a Trip to Mexico Is a Good Idea". That was the Publisher's banner. I originally titled it Asleep At The Wheel? Both are appropriate.

Q: In a very recent column you stated that the spring buyers “have exited for the most part and there won’t be any volume of buyers looking until late summer”. I was told from somebody in the industry that business was picking up. Can you explain your perspective?

A: Since the year 2000 there are clearly two primary selling seasons for Mammoth real estate. There has always been a pre-winter push driven by the anticipation of skiing and positive rental income. The other busy and productive period has become the late winter/early spring when Southern California families are here for extended vacations. Those weeks are more spread out due to the schools being on “tracks”. During these weeks there is no rush, no “weekend warrior” mentality. Mom and dad (and grandma and grandpa) relax a bit and can spend some quality time looking at real estate.

So with the spring break period over, the ski season winding down, and thoughts of the beach and the River on people’s minds, the Mammoth real estate market historically takes a pause. And yes, there will still be some buyers poking around and Fourth of July always brings great expectations, but as I said, I wouldn’t expect any volume of buyers until late summer.

But it is an important time of year for real estate types. Our minds go from skiing and snow management to summer sports and landscape and repair. The contractors are already moving here in town and Mammoth puts on a delightful face for summer. But here’s what is important––between now and Labor Day the inventory traditionally moves up in numbers. This typical increase in inventory will once again expose the real sellers from the not-so-real sellers. For me, I’m paying attention to the possible “gems” that may come to the market––those really choice properties that are prized and few-and-far-between, or the really good buys of quality properties. And some that after 90 days or so of marketing may become good buys. Again, for market watchers it’s an important time to observe.

So the inventory is going to increase?? Let’s look at some of the current numbers. But let me first state that there are dozens of properties that have been listed in the past 12 months that have expired or been withdrawn from the market. Many of these listings won’t reappear. This is characteristic of the Mammoth “don’t-have-to-sell” market. As of this writing there are only 65 homes listed for sale––a relatively low number. Some are very attractive high-end homes and have been on the market for years. And some are really the dregs and their owners are still living in a Starwood induced delusional state. I think some just like the attention of a (pretty) Realtor®. We’ll see some newcomers to the market, some rehash, and maybe even some price reductions. I do know thing, in this market segment there are lots of folks (wannabe buyers) watching. And as I drive around the neighborhoods this spring I see some major remodels starting.

The condo inventory has been sitting right around the 300 mark for some time. Over 10% of the condo inventory is in the Westin Monache. Another 10% is condo hotel product in the Village, and another 10+/-% is in the Snowcreek Phase 6 (The Lodges) or in Intrawest or other developer’s new inventory. That leaves about 200 of the regular old resale condos in the today’s inventory. Again, this is in no way excessive from a historical perspective.

The bulk of the truly motivated sellers are those that bought in the 2004-06 timeframe, and typically bought with 100% financing (with rapidly increasing “toxic” payments). Many of these owners will simply end up in foreclosure and those properties will end up being good buys for someone else. Oh, and there are a few motivated sellers who just couldn’t resist refinancing every penny out of their properties at the height of values.

And as we head towards the second half of 2008 there are some interesting unknowns and uncertainties that may generate activity and some good buying opportunities. The first is the Presidential election. God only knows what could happen. While one candidate proposes raising the capital gains tax, a backlash of support arises for eliminating it for a window of time to stimulate the economy. Capital gains taxation is a serious underlying driver for Mammoth real estate––both in and out of the market. And yes, tinkering with either way will have ramifications.

And what about mortgage rates? Who knows? Those buyers with down payments and good credit can get loans. Appraisals have been unpredictable––some higher, and some lower than expected. Some appraisals have queered transactions. Some have made sellers renegotiate. But the mortgage rates have been bouncing around almost arbitrarily. Now is an even more important time for buyers to have a top-notch mortgage professional working for them.

Yes, a seasonal lull in buyer traffic is all part of the sales cycle here in Mammoth. The sales push for the Ritz is having nominal, if any, effect on the balance of the market (not like in the past where these sales efforts created whirlwinds of activity). Serious market watchers will be perusing their favorite search engines and watching their segment of the market. I can already see a big difference coming between some segments. It’s all about supply and demand. In the meantime it is time to finish off some spring skiing, get the bike tuned up and maybe even think about a trip to Mexico.

Broker's Report, April 16 2008

Broker’s Report April 16––In the spirit of keeping this from sounding like the Broken Record Report instead of a fresh Broker’s Report, I will digress somewhat this time around, but hopefully produce something worth your while.

For those serious market watchers who want immediate information, here it is; the Mammoth market has, for the most part, returned to a stalemate between buyers and sellers. Some significant price reductions have brought transactions. But most sellers have dropped back into passive mode. A half dozen or so are slowly heading into foreclosure. And some have their fingers crossed that a short sale is possible. The typical spring break lookers and buyers who spread out over the weeks of the So Cal school breaks appeared and were bargain shopping. They have exited for the most part and there won’t be any volume of buyers looking until late summer. Many of the shoppers in the condo arena were not only looking to low-ball offers but were also looking for income histories. (It appears that some agents have returned to “income production selling” in the condo market––enough for broken records.)

So let me digress. Over time I pile up what I think are tasty bits information from various sources that apply to what is happening in Mammoth and the real estate market. Some of this information flows to sales meetings and some to the trash can. But some stick. So here is some of what I’ve dug out of the stack.

The April 14 edition (this is a fresh one) of FORTUNE magazine on page 30 reports “The Luxury Recession”. “Purveyors of high-end goods and services––normally insulated from economic slowdowns––say they are starting to register a sharp downturn in discretionary spending.” Bookings at the Leading Hotels of the World are down 10% in 2008, high-end steakhouses are replacing prime cuts with lower grades of meat, retail golf sales are down, yacht sales are down 50%, and private Pilates classes are making way to group classes. (I just wish I had the guts for a Pilates class.) All of this may be good or bad for Mammoth and its constituents, depending if you’ve bet on the uppity future of Mammoth or the down-home inherent qualities that have always been and always will be. (The Place to Be Is Already Here?)

From the New West Network on April 1 (this was no April Fools’) titled “Credit Suisse’s Troubled Rocky Mountain Empire”. The article speaks to the failures at the Tamarack Resort in Idaho, the Promontory Club in Utah and the Yellowstone Club in Montana––all new high-end (mountain) resort developments. What all three have in common is that international banking giant Credit Suisse is their primary financier. Tamarack is in bankruptcy and they are in default of their $250 million loan and Credit Suisse is trying to foreclose. Promontory is also in bankruptcy and owes CS $275 million. The Yellowstone deal is more convoluted and a little higher in profile. But the celebrity clientele is bailing on the half finished project. The CS loan there is $300 million.

The article states “It’s impossible to know whether Credit Suisse was a foolish lender that’s about to lose its shirt, or a shrewd deal-maker that’s about to pick up some valuable properties for a song.” I wonder if Credit Suisse has a quarter-billion dollar loan on Mammoth? But my “take away”––there is an obvious limit in the demand for luxury mountain resort product. This should continue unless the dollar becomes so worthless that the rest of the world considers basement pricing for the luxury experience. And ultimately the resilience of Mammoth is its ability to consistently do numbers.

Around town I am hearing a recurring theme. Old time locals like Steve “Bearman” Searles and Town Council candidate Chris Tolley are among those that have barked at me “We want our town back.” I ask these people what that means. Their responses are thoughtful. They think about the way Mammoth was in the 80’s and 90’s. Times were tough economically but there was a much greater sense of community. (We were all in the lifeboat together.) And there was no mania. They express they aren’t opposed to growth and development. They just don’t like the circus, the transient egos and short-term thinking––the sell-out to corporate carpetbagging. It reminds me of the old saying “Be careful of what you ask for.” But what they’re asking for is happening. Mammoth’s own form of Darwinism is resurfacing. (Darn, gorging at Nevados is so much more fun than picking over the sale items at VONS.) But I digress.

Back to real estate and some of my random observations. The Westin will epitomize this past era of excess and speculation. The currently listed inventory at the Westin Monache represents 10+% of all the Mammoth condo listings. I’m aware of many second phase defaults (and buyers walking away from their 10% monies) and now it appears they are holding back at actually re-listing the properties––the MLS as of this week reflects, “contact…for further information regarding developer product inventory.” And one local attorney has pointed out to me the developer’s Civil Code responsibility to those defaulting buyers. This creates just one more quandary that will only be exacerbated by the coming months of the rental income black hole. Buyer beware, phantom inventory is greater than ostensible inventory.

Another growing complaint is the “trust” many Mammoth buyers (2005-07) put in the Starwood acquisition. That trust has dissipated to nothingness. I guess we’re lucky the chairlifts keep running. A broken down Branding process, no new lodge at Eagle, no Village parking lot, no ski back trail, no “1”, (although the new Chair 9 is very cool albeit a very questionable investment in relation to other needs), no nothing really. Oh I forgot, fancy LA food on the Mountain. The airport may be ready just in time for fuel prices to crush the airlines. And all hope is now left to some newcomer Cowboys to put on the Ritz, pump the Town coffers and keep the trickle of momentum going. The only things we can really trust in are the God given qualities of Mammoth. It really is starting to feel like the 80’s and 90’s again.

Oh there’s that broken record. Maybe we should just brand it Broken Record Mountain. Meanwhile, it is time to renew your MVP or buy an April discount Gold pass. Get a SUV hybrid with DVDs in the back for the kids. If you ever planned on building or remodeling in Mammoth, now is a great time. The contractors are waiting.

Clearly there are many waiting-in-the-wings buyers for Mammoth real estate. But there is no pressure other than life’s clock. I don’t know how to respond to so many who want to own a piece of Mammoth but to just sit back and see where all of this is going. My answer is I’ll just do my best to keep you apprised of the market. I’m watching and analyzing every day. But don’t mind if I take some time and go skiing, go hike or ride the bike or go fishing on the Pacific. All of this will sort itself out.

Meanwhile, keep an eye on the deal for the Main Lodge property. That land belongs to the public––that’s you and me––we’re the sellers. And the Feds haven’t proved to be good fiduciaries. And you know what that gets you. Skip, skip, skip…

Please join us for Town Clean Up on May 17, the sponsoring restaurants are promising to out-do the fantastic job they did last year!

Mammoth Foreclosures 2.0––The First Inning

Foreclosures are reaching record numbers in many real estate markets, some to the extent that foreclosure numbers are exceeding actual closed sales. Seeing those kinds of statistics can be shocking. Clearly, the values in those markets will be greatly impacted by the volume of foreclosed properties. That is why I have been intensively watching and reporting on that segment of the market for the past 18 months. But all appearances are that the Mammoth Lakes market will be different. Not that it will remain unscathed, but foreclosures will not be the foot-on-the gas of a downward spiral in values.

After an early year push of a half dozen well priced and attractive lender owned properties, we have hit a lull. But there are more properties in the pipeline. Part of the lull was created by a moratorium of sorts––a farce government intervention that the lenders went along with because they were so backlogged anyway. (Oh, the things that will happen in an election year.) And we’ve been lulled by other delay tactics. Short sale attempts are causing lenders to forestall Trustee’s Sales. And pseudo bankruptcy filings (and some real ones too) are causing delays. And there are some squatters and other random salvation attempts. But even at some future peak I don’t see foreclosure numbers even being a small fraction of the sales here in Mammoth.

Each one of these pre-foreclosure (Notice of Default filed) or actual foreclosed properties is a story unto itself. Some are truly unfortunate, some are like soap operas, some reek of fraud and dubious dealing, and some were simple gambling on the Mammoth craps table. Most are a result of a series of poor decisions. And it is somewhat disconcerting to see certain local agents repeatedly appear as the agent who represented the owner in their purchase.

The process from actual foreclosure to bringing the property back to the market can vary greatly depending on the lender and the property. Some lenders are directly overseeing their REOs (“real estate owned”) through their own asset management companies. Others are using clearinghouse and sub-contracted companies. Soon after the properties are foreclosed on the status of the property needs to be assessed. If vacant, the locks are changed, no trespassing signs posted, utilities switched over, etc. Properties with personal property remaining need special care. If the properties are still occupied then the occupants need to dealt with according to the new owner’s policies. Oh, and there’s a million forms to fill out.

Eventually the property will be listed on the open market (no insider deals.) And that can take anywhere from a couple of weeks to several months. The marketing and subsequent sale and escrow are handled similar to any other sale and escrow except that the buyer must be pre-approved (but that is becoming standard in the day-to-day business too.) The critical thing for a buyer is that unlike buying straight at a Trustee’s Sale, the buyer of a REO gets to complete all their inspections, including physical inspections of the property as well as matters affecting title and any Homeowner’s Association related documents. The buyer and seller also pro rate expenses like property taxes, etc. For buyers trying to understand the whole process, it is much safer to purchase a property as an REO rather than at a Trustee’s Sale. And so far in this cycle the prices are lower too. That’s because the lender prices the REO to sell––usually slightly below the market. The REO pricing has nothing to do with how much the previous owner owed on the property.

We’re getting a glimpse of some other things; the Village will have its share of foreclosed property. We already have one under management that will come to the market soon. There are others in the pipeline. There are others being offered as short sales that will likely end up being REOs. (The real interesting question is when will the first Westin REO hit the market. It will be a year at least, but with the volume of buyer defaults, the number of quickly re-listed units and price reductions below the original selling price, AND the fact that we’re heading into the rental doldrums months, it is only a matter of time.)

We’re also getting a glimpse at which lenders kept their Mammoth loans in their portfolios and which ones sold them off (and their servicing rights.) This is an interesting sidebar to the national and international banking crisis that we are experiencing….And because of Mammoth’s geographical location we are seeing some local REOs listed with agents from places like Fresno and Chino. And their pricing is off because they don’t know the market. The lenders grade each REO you handle so a couple of bad grades and you’ll flunk out…And while the REOs in Mammoth so far have been good buys, they still have to be compared to other good buys in the market––and we are finally beginning to find out who the real sellers are.

Meanwhile, hungry agents and posers are jumping on the REO bandwagon. Don’t be fooled. Only a few months ago they were still trying to hype their favorite new development and didn’t know a Trustee’s Sale from a yard sale (some still don’t.) And they’ll likely be plagiarizing content from this column for their own promotion. (I do love the time stamps on blogs.) Now if they can just keep their names out of the public notices.

More Affordable Housing in Mammoth

March Mammoth Real Estate Q&A as appeared in the March 22 issue of The Sheet

Q: A recent Los Angeles Times article that featured Mammoth talked about the increasing apartment vacancies in town this winter. Is this for real, is it a trend, and what’s it all about?

A: While I like to focus my business on resort residential properties, I always seem to get dragged into the income property and commercial property side as well. And maybe that’s okay because it keeps the other side of my brain functioning too. For more clarity on this subject, let’s sit down with Uncle Supply and Auntie Demand and see how things are faring.

The supply side has been greatly affected by Mammoth Lakes Housing, Inc., the Town’s housing authority. They have been a significant developer in Mammoth in the past few years. They have built, and continue to build, units for low- and middle-income residents. These include units for rental and for deed restricted ownership. While some (including myself) could debate that the volume has been excessive, there are a couple of wildcards. First, there really is a limited amount of land for these projects––short of tearing down other people’s homes. But more importantly, with the financial conditions of our State and Federal governments, we never know when these generous grant programs that help facilitate these projects could cease. Better to get these projects in the ground while we can.

What I anticipated, and what I believe has actually happened, is that these affordable housing projects have repositioned many quality year-round tenants. I refer to these folks as A and B+ tenants, and many have moved from privately owned rental properties into the subsidized housing. This has impacted the vacancy factor and stability in the private sector. The result is evident in the increased vacancies we saw last fall and even right now. These vacancies are mostly found in older, substandard properties.

Another increasing supply factor are what I refer to as “specu-vestor” rentals. During the heat of the market, say 2003 to 2006, many speculators bought properties without long-term intentions. The opportunity to “turn” their properties is now gone so they have become landlords to annual and semi-annual leases to alleviate their cash flow crunch. Many of these properties used to be in the transient occupancy pool, but they aren’t missed because so many new properties have been built to fill that void.

Now let’s look at demand. It’s really hard to tell if overall economics are playing a part. We’ll have to wait for some short-term historical data. Empirical data shows there is still an employee shortage in town. Ask any businessman. But one thing for sure is the mass of migrant construction workers has moved on. (Does that mean I can dispose of the “Not Mammeth” stickers?) Some of these construction workers were occupying some of the really junky properties––and paying high rents too. We’ll see if the Ritz construction goes forward and if that impacts the market.

I don’t really buy the “winter-after-drought winter” argument. It really didn’t seem to have an affect when we had five drought winters in a row. But most importantly I do think we have hit (and are bouncing off) a ceiling on rents and that might be a good thing. High rents kill businesses that rely on lower wage employees. And after all, those employees make this town run. (Gee, is there a correlation between the peak of residential rents and the increasing vacancies in our retail and commercial space?) Lower rents can in fact increase the demand a bit. I think we’re about to find some equilibrium in the market. That’s not good for overzealous landlords, but it’s good for a whole lot of other people.

All of these supply and demand dynamics expose other concerns. With lower rents, higher vacancies, and tenants “moving-up” (that’s the American way), many of the low-grade income properties will likely fall into greater disrepair. We’re endeared to “the Ghetto” and can get a chuckle over Barrio Barjur (or is that Barrio Agua Clara?), but we all know that keeping a resort town looking good is critical to it’s success. Maybe it’s time to try re-development again––and for good reason.

I also have a professional concern. During the recent boom years many true investment properties were purchased without the buyers or agents ever running the numbers through a calculator. Many agents and potential buyers would ask me what I thought “X”. I would respond, “Show me the numbers.” What I got back most times was a puzzled look. Some even discovered that property taxes were an expense. (Some agents didn’t even know what the property tax rate was.) Many investment properties were purchased for speculation and not for present cash flow. Some were bought convinced that rents were undervalued (when in fact they might have been at a peak.) All dumb. Clearly they had no grasp on Mammoth’s economy, or seasonal economies in general. All they saw was “the new Aspen.” What may hurt some of these “investors” the most is the lack of re-salability––with market rents and rental demand going down and credit tightening, they are now in for the long haul.

So yes, it is for real and there will be winners and losers (not that again) out of the whole situation. There are telling signs. Last week’s issue of The Sheet referred to former Mammoth Mountain Real Estate Guru Peter Denniston citing a Goldman Sachs report that commercial real estate is expected to shed 21-26% in value over the next two years. And he also expressed frustration for the Village merchants and bemoaned the continued lack of a parking structure there. I always try to read between the lines. Perhaps Peter and his good buddy Rusty are eying a chance to be Village vultures. I just wonder what sort of a discount would make them buyers?

Meanwhile, take a cue from them––opportunities will show. And then it will all come down to luck. Luck being defined as opportunity meeting preparedness. Then the only question is, will you be prepared?

What’s a Resort Community To Do?

This column could have been titled Desperate Developers 3.0, but rather than bash developers I would like to pose a question––and get thinking about a solution. The development quandary in Mammoth is now coming to a head. We have a yet-to-be but soon-to-be heated Town Council race that will culminate in a June vote. We have a very controversial height-sensitive project proposed along Mammoth Creek. And the Ritz-Carlton is trying to sell a massive high-density project that is highly reliant upon a workforce that doesn’t exist and isn’t likely to exist. (Maybe my doorman job will be there after all.)

All of these variances are a result of developers simply paying too much for the land. To compensate for their overpayment, they want to increase density by pushing the setback and (especially) height restrictions and propose compromised designs (including using mechanical lifts in parking garages and “valet parking only” arrangements, etc.) I have a feeling the absurdity is only just beginning. Rather than doing their homework on the front end, they want to dump lousy projects on our community and ultimately the buyers and owners. Didn’t we learn from this the last go ‘round?

There’s no doubt the market is in a lull for these new developments. The growing “for sale” inventory in Westin Monache is telling. And the success of the current sales effort for the Ritz––and if it does in fact break ground this summer––will also be telling. But economic downturns are good times for developers to get their entitlements. There’s plenty of hope (my favorite economic strategy) and most of the local public are once again scrambling for their existence and aren’t paying attention. And the government employees aren’t so busy, so they’re compelled to justify their employment by processing ridiculous development proposals. (And right now the Town Council is dying to get a multi-million dollar Developer Impact Fee to relieve their budget woes.)

So we have all sorts of projects in the pipeline. The development pro formas are ugly. Land costs, plus “soft costs”, plus building costs, plus permits, plus DIFs, plus marketing costs (damn brokers), plus buyer concessions––jeez!! “We’re totally upside down. Who sold us this property? Where were our analysts? And the cost of financing is going up? Hell, we need to put 5 more stories on this. Okay, we’ll just bully our way through. Those Mammoth locals are dumb, we’ll just bullshit ‘em like the last guys did.”

But the real problems these developers face are demand and capacity. It will be a long time, if ever, before there is another long line of buyers for this overpriced, over-hyped, substandard property. The buyer pool has been burned and many existing owners are just getting to the pain cycle because their values are dropping fast, their costs are going up, and their revenue is marginal at best. Even worse is there is already too much supply. In total, this product is not an attractive investment and the days of easy financing and wild-eyed speculation are over. Throw in the well planned (and hyped) but failed amenity package including regular air service, public parking, a vibrant commercial district, hospitality focus, and even the ski-back trail (whatever that is really worth), and… At least we got the Gondola (to nowhere?)

So while the developers are pushing for more density, the demand for what they want to build is diminishing––rapidly. (Haven’t they figured out that buyers and visitors don’t come here to be “densified”. Convenience is one thing, but they come here for the open space, the vistas, the sunlight, the fresh air.) Ultimately, what the planners and decision makers don’t have the guts to do, the market will do. Even the investment bankers (who loan the money to the developers) have figured out that the condo hotel market has problems––even in a mature market. And Mammoth is far from a mature hotel market. (The investment bankers are also figuring out that if the operator doesn’t have any real vested interest, or what they call “skin in the game” in today’s jargon, that the hospitality, service and management levels will inevitably be substandard.) Even worse is the lending criteria for these properties is tightening. Lenders clearly see these as riskier loans, so expect larger down payments and higher interest rates for buyers.

All of this makes me think that some of these developments parcels will likely fall into one of today’s more popular real estate and financial categories––“foreclosure” or “write down”. Maybe then the developers won’t need all the variances, and can build something marketable too. And maybe we can get a couple of our half-finished projects (80/50, Solstice) completed.

So what is this resort community to do? If the market will inevitably postpone these developments, should we keep up the charade? A lot of sensible planning is being tossed out the window to accommodate these developers who overpaid for their land. This is going to be an important question to ask our Town officials and candidates in the months to come.

Scrubbing The Condo Inventory

This Q&A would have been timely for the February issue of Real Estate Times. But I would have missed the deadline anyway––too much skiing and snow to shovel. I think there’s more relevant information here than in that entire issue. So…

Q: When you say that you “scrub” the condo inventory, walk us through your mental process of doing this and the reasoning behind the scrubbing.

A: Years ago I remember waiting for Friday afternoon when the new MLS books came out––new listings and new information. Seems like the Stone Age. Things have certainly changed in the last couple of decades. Today I watch the MLS on my computer screen like a stockbroker watches the stock market––spotting new listings, volume, trends, etc.––the action in general. Luckily it doesn’t move too quickly so you can get in a few ski runs. And the rest of the interested world can watch along too thanks to the proliferation of the Internet and websites. My brain mainly processes what’s selling and what’s not. A new listing or a price reduction may compel further research, some discussion with fellow agents, a serious scratch of the head, and quite possibly a trip out into the field for a closer look. (Thank God I’m not forced to stay at my desk.)

The first number that my brain is watching is total number of condos currently listed. It fluctuates up and down a bit based on listings expiring and being renewed. Recently the number has been hovering around 280 to 290. The number seasonally peaks around Labor Day and usually bottoms in mid-winter. (If this is the bottom, we may have a ton of inventory by late summer.) Over the years I recall the condo inventory as low as 30 and as high as over 400. For a good decade, from about 1988 to 1998, the number sat around 335 (and there’s been hundreds and hundreds of condos built since then).

Condo listings come and go, some sell and some languish for years. Mammoth is greatly a “don’t have to buy, don’t have to sell” market. Many owners like to “fish”. Right now there are plenty of owners fishing. There are buyers in the market, but they’re buying at 20 to 30 percent off of the peak. Most of the posing sellers don’t want to sell at those prices. And many agents are now simply refusing to take listings at the higher prices. The standing inventory of unmotivated sellers is affecting the appearance of the market––long days-on-market and other unappealing market statistics don’t help matters. Best to just get this stuff out of the inventory. The only people it helps are the owners of real estate magazines and paid-per-hour webmasters.

So then it gets down to scrubbing. The goal in my mind is to have a dozen or so “tip-of-the tongue” best buys picked out. Good properties at good or reasonable prices, or maybe some inside information. And it’s important to have few “trophy” properties in mind. No lousy HOAs or substandard locations. No multiple cookie cutter competitors with stale pricing. These cherries are constantly changing because they are good buys and they don’t typically last. And some times they become good buys just based on a serious price reduction. And this time of year these may be difficult to even look at because they are heavily rented or snowed under.

Then the real scrubbing begins. Right now there is a large inventory of the “cookie cutters”––many are units built in the last few years and many bought on speculation. Frequent readers know I’m not enthused about the Village condo hotel units––too much supply, mediocre revenue, high costs, low utility, etc. (but your wife likes it!) And for clarification, I do condone investing near the Village, just not in the Village. (If you haven’t figured out why you need to read further into this blog’s content.) The Village will go through considerable pain, but it will recover. The sooner the better, but it will take at least 3 years or more, just depending on the level of obstinance. Other inventory in this scrub out includes The Lodges (Snowcreek 6), The Westin, Solstice and a few others.

If the prices come down these might be worth buying, but most were bought at peak pricing. We can pull about 100 +/– listings out of the inventory––like a big blob just sitting there. Some of these may end up in foreclosure, but most will just sit. Like I have reiterated before, when it comes to this class of units there is only a small percentage worth owning––ones with great locations within the project, views, sun, etc. In the condo hotel product the top floor is nice. (I recently noted a sale of a 2 bedroom in the Village, great price, but I sincerely hope the new owners are hard of hearing.)

Then my scrubbing mind goes to the “Why?” part of the inventory. Newbies can sell them but I can’t. Second homeownership should have positive connotations––great experiences and memories and anticipation of future ones. While no property is perfect, one of the goals is to minimize the nightmares. Spend some time with a conscious (or self conscious) Realtor and you know that scrubs out another 60 or 70 properties. Why? Poor locations (even though some of these units might be new), funky HOAs, long histories of defects and problems––the things your home inspector won’t find, etc. (I’ll still take a 40-year old Chateau Blanc unit over a great deal of the inventory.)

And now I get down to scrubbing on good properties that just aren’t priced to the market at this point in time. There’s nothing wrong with the property. The local agents (myself included) are, in the past couple of months, really beginning to take a stance on pricing. It is just market reality. The agents and owners have been programmed by years of increased pricing and even taking the risk of “leaving money on the table”. Those days are over. I see no “magic pill” announcements or legislative stimulus package (just more great skiing). The media and the lending environment (the return to traditional lending standards) have taken their toll. The good news is that there are still buyers interested in Mammoth. And they already have the bulk of the information to make their buying decisions. And they aren’t going to pay 2005 pricing for less than spectacular properties.

The problem is the inventory is swollen with properties that simply aren’t going to sell, at or near their currently listed price. We have proven that they will sell at something substantially less. The “don’t have to sell” owners who have their properties listed are doing the market a great disservice by bloating the inventory. The local agents and these sellers appear to be wising up. On the other hand, there are sellers hoping to sell at their price but can’t because their loan amounts exceed the current value. Some agents are marketing these as potential short sales. To make these short sales work in a second home/investment environment, something is going to have to give. Owners are going to have to put money into the transaction or the lenders are going to have change some historical policy. So far, I’m still a short sale skeptic in this market. The agents working these transactions may tire with frustration, especially for a reduced commission. The short sale buyer may conclude they aren’t getting a good enough deal.

So at the end of scrubbing the inventory, there remains a small, maybe less than 50, amount of condos to pay attention to. But the scrubbing is an almost constant. Oops, look at that, this new listing is priced to sell. Better go take a look. See ya!

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.

Broker's Report, Feb. 5

Broker’s Report Feb. 5––Lots of good and interesting things to talk about.

Snow. January was a snowy and windy month and it has spilled into February. Mammoth has solid snowpack on the ground and good skiing is guaranteed through spring and the winter certainly won’t be labeled drought. It is creating buzz. And the snow has brought real estate activity with it.

Real estate sales. The holiday period and post-holiday period is traditionally slow for real estate sales––but not this year. Considering the negative state of many real estate markets, and the turned-up volume by the media, this comes as a bit of a surprise. The activity isn’t earth shattering, but it is here. And it isn’t being driven by Ritz-Carlton marketing and hype. The buyers I’m seeing don’t care about that. The most impressive thing to me in the past month is the number of cash buyers in $500K to $1M range. The files show it is primarily money flowing from the stock market. These buyers aren’t buying “luxury,” they’re looking for good buys and good values in quality locations. Many are ski-oriented properties (go figure).

Foreclosures. Long time readers here know I am constantly watching the inventory, and the segments within the inventory, as a telltale of the future. I’m also watching the foreclosure pipeline. I’m watching Mammoth foreclosures carefully because my company is representing several lenders on their newly foreclosed properties. (We have found that brokers who represent foreclosures have to be on the realistic side. Brokers can’t be drinking Kool-Aid and leading cheers and represent foreclosures.) As I have said in the past months, a large volume of foreclosures will dramatically drive values down in a market. Combined with plenty of other resale inventory, and the downward spiral only accelerates. This is happening in many marketplaces. But so far there is no sign of that in Mammoth. We’ll talk about inventory in a minute.

Presently, the total number of properties foreclosed on and subsequently sold, or in escrow, or on the market, or in the pipeline (Notice of Default filed and likely to become lender owned) is about a dozen. My current research shows that this is a low for any county in California. I do see properties on the market that are distressed and may end up in foreclosure. But again, no big numbers. The foreclosed properties here in Mammoth are typical of the national market––many of these owners never had a dime into their properties. The owners haven’t “lost” money.

Short sales. Numerous agents are promoting “short sales”. It has become trendy, with agents going to guru-type seminars to become proficient, or an “expert”. But short sales are an interesting subject in a predominantly second home market. This will likely be part of future columns, or at least future Broker’s Reports. In the past lenders haven’t had much appetite for short sales in the second home/investor market. (I’ll spare the discussion of recourse and non-recourse loans for now. For good info on this subject, check out www.sandiegopredatorylending.com. Bankruptcy and real estate attorney Kenneth L. Andrews provides good information and writes in an understandable and realistic manner.)

So far we have learned a few things about Mammoth short sales. For a lender to even consider a short sale a Notice of Default has to be filed––that means the owner has to be at least a few months late on payments. The owner has to be prepared to (really) prove economic hardship. And they may have to bring some cash to the table. And the brokers are going to hammered on commissions. And the lenders are so overwhelmed that getting someone to pay attention is difficult. And in many cases there are second and third loans. A popular tactic is to file bankruptcy to forestall the process. Trustee’s Sales are being delayed pending negotiations. Agents and sellers are hopeful. I think that much like each property that is foreclosed on, each short sale will be an individual case.

The really important “take-away” from the foreclosure and short sale market in Mammoth is that the volume of foreclosures is very small at this point and the foreseeable future. Those buying lender owned properties are getting attractive deals (the sellers are motivated). And most importantly there really are buyers in the market (multiple offers in most cases) and the sales are not destroying market values.

Inventory. Many of the same inventory trends exist but with some adjustments. No excessive growth in inventory. Numbers are actually pretty stagnant. In fact, they may be low due right now due to expired and withdrawn listings and apathetic sellers (?) and typical mid-winter shuffling around. The closings in the Westin Monache continue with the second phase closings due in the next two months. The appearance of developer owned units in the local MLS is evidence some buyers have walked away from their 10% (or have otherwise walked on their transactions). Others are closing and bringing their units right back on the market. Once the second phase is completed and the inventory numbers are scrubbed, my guess is there is likely to be 50 Westin units available by late summer. But I expect the powers-that-be to manipulate the numbers. Perhaps many owners will asking, “Why did we buy this?” (Without established air service, conference business, etc., these units will sit empty all summer. But the bar is nice.)

Other Village condo hotel units are beginning to drift down to original values. A sale last week of a 2-bedroom in Grand Sierra Lodge at $560,000 is indicative. And Mammoth’s oldest standing real estate broker just reduced his 1-bedroom “investment” down to dump price. A growing sales obstacle is the increasing HOA fees that include out-of-control propane expenses and the Village association fees. Combined with very seasonal rental revenue, well…

Some of the standoff between buyers and sellers is beginning to shake loose. Plenty of inventory continues to sit. The majority of homes listed under $1M are simply atrocious and need major reductions. (They need to start thinking like the lender’s asset managers.) There is a shortage of quality homes in the $1.2M to $1.8M range. Homes in the $2M plus range are being ignored. Buyers in that range are waiting. And I think, so are the sellers. In the balance of the condo market there are some good buys showing in Snowcreek V. Snowcreek VI, The Lodges, inventory is sitting. Many of those owners bought at what now is the top of the market (2004-2006 depending on product). And the developer appears to be sitting on some unsold inventory too. But like the lender owned properties, sellers who bring their condo asking prices down 10-30% off the peak values have a good chance of selling.

The construction industry has slowed dramatically in Mammoth. From what I can tell it is an opportune time to build a home or remodel the condo. The smugness is gone. Lumber and labor costs are destined to be down. But if oil and metals stay pricey the rest of construction costs will stay high. And the Town offices have plenty of time to process your plans and permits. Spring will be a good time to shop for a lot––and there’s a couple dozen to choose from. Residential lots will simply remain a scarce market in Mammoth. But again, the take-away is that the inventory numbers are not going stratospheric. In fact, they are rather stable but very stale––and especially if you scrub through all the junk and ridiculously priced.

Commercial Real Estate. A recent Wall St. Journal headline read “Do the Math or Take a Bath”. The article could have been written about Mammoth. Plenty of commercial investment is asking, again, “Why did we buy this?” Commercial vacancies are growing and rumors abound about many tenants not able to pay rent, and it is documented that the Village has massive rent stress. So much for the hubris laden strategy by new owners to “set new thresholds for commercial rents”. (I guess you have to have been a business owner through drought and recessions to really understand.) I’ve been asking people to explain their math for years. Is all this coming home to roost?

I think I’ve babbled long enough…If the Feds raise the conforming loan level to over $700K there might be a small push to purchase and refinance in Mammoth. Stay tuned––it’s an election year! Meanwhile, serious buyers are not having a problem getting financing…. Let’s see how the Ritz sales effort turns out. I hope they build it. The Westin has had a positive effect on the community, but as one of my associates said after walking through one of the very nice 2 bedroom units, “I’d like to stay there, but I wouldn’t want to own it.” (Of course, he likes his old motorhome too.)…The Night of Lights was one of the most positive things the Mountain has done in years––thanks for bringing it back…And don’t ask me, I don’t have a clue about The Airport, The Brand, The Roof (for the ice rink), Wellness, Who really owns the Mountain at this point, or Widespread Panic coming this summer. For now it’s just real estate and some good skiing.

––30––

Mammoth Real Estate, 80's, 90's, and the 21st Century.

Mammoth Real Estate Q&A will no longer appear in the Mammoth Real Estate Times. This column would have appeared in the January issue. From now on it will only be found here www.MammothRealEstateBlog.com or on the RE/MAX of Mammoth website. I thank you for continuing to read and comment.

Q: The doomsayers (trolls?) on your blog are always referring to the crash in values in the 90’s, but as I recall the real devaluation of properties in Mammoth occurred in the 1981 to 1987 timeframe. Please draw the key differences and similarities between the 80’s to now.

A: You are correct that the early and mid 90’s was not a substantial crash here in Mammoth. Values rose slightly in the late 80’s but were still quite hungover from the disaster of the early and mid 80’s. Values in Mammoth really languished for well over a decade. It wasn’t until the Intrawest hype machine, and the better economics, of the late 90’s arrived to shake us out of the stupor. (Some argue that that long period of suppressed values––while other quality mountain resort communities inflated––is why Mammoth won’t fall as far as many other markets.) The economic conditions we experienced in Mammoth in the 90’s is why so many of us that remained (literally) in this community worked so hard to plan for a successful economic future. I have a feeling we’ll be revisiting some of those plans and failures in the next few years.

But the 80’s were a doozy for a multitude of reasons. I remember it as an era of everybody having at least four or five jobs to survive. I also remember it as a time of great skiing and lots of fun (but of course I was a lot younger.) The big wild card, and perhaps the greatest influence on real estate values, came right out of ground. The ground shook (hard) in Mammoth and Mt. St. Helens put everyone on notice of the dangers of living near magnificent geology. The USGS, like many boomers today, decided Mammoth was a perfect place to spend lots of quality time. They became known as the U.S. Guessing Society. And the press gave everyone the impression Mammoth was about to blow.

Today, the earth around us has settled down and buyers of real estate in Mammoth have witnessed natural disasters everywhere in the world (and even in their own backyard.) And they seem more concerned about escaping “city” problems––traffic, crime, etc., than they are the potential natural disasters in Mammoth. But years of USGS presence, ongoing earthquake activity, and plenty of negative media coverage, did nothing good for real estate values. It kept Mammoth at the bargain-basement values well into the late 90’s and even beyond.

Another major contributing factor was interest rates. I hear folks whine about “high” interest rates today. Anyone with a perspective will laugh. Mortgage rates in the heyday of Mammoth real estate (late 70’s/1980) were in the 14% to 16% fixed range. And real estate values in Mammoth were comparable to places like Aspen and Sun Valley. (Again, some argue that Mammoth values only “rebounded” during the goldilocks period.) Today’s interest rates are downright cheap. But those high interest rates ultimately resulted in massive foreclosure rates––foreclosure volume that dramatically affected downward market values. I remember some condo projects with a vast number of bank owned units. I don’t see that happening this time around. But…

Tax laws have always impacted real estate values in Mammoth. The tax-deferred exchange (IRS Sec. 1031) laws helped drive the market in the past 10 years. Many buyers were “exchanging” into Mammoth second homes. The tax-free sales opportunity for primary residences (Sec. 121) also drove a certain amount of volume. (Thank you, Congress and IRS.) But the tax law changes in 1986 destroyed existing and very, very attractive tax benefits to second homes owned by professionals like doctors and lawyers. Those changes alone would have affected market values, but on top of everything else it was just like finding ice on the run you enjoyed so much the day before.

And of course there was a notorious recession in the early 80’s, and some inflation too. (Will there ever NOT be inflation? Anyone want to chime in?) I’m not smart enough to know where our present day economy is going but I’m seeing a recession on Main St. But that’s bound to happen after a really good party. One other thing, timeshare was tried in the pre-80’s heyday and it failed too. This time around it was dubbed “club”. It will be fascinating to see how all that works out. Is there enough “smart” or “dumb” money to come and bail all of this out?

There are some real differences this time around. Demographics is the well beaten horse but there is no denying it is real. It seems like everyday I hear “I just turned 60 and …”. The eight-lane population highway of boomers that now want to purchase their escape-and-recreation/semi-retirement home in Mammoth were also a big part of the 80’s. They lustfully came to Mammoth to ski, buy rounds of drinks at Rafters, and seemed oblivious to earthquakes, interest rates and recession. No wonder the bar business was so good back then. Now their kids are out of college and 60 is the new 40. Make reservations and summon the sommelier.

Visitors and second homeowners have also come to appreciate summer. In the 80’s it was the big secret. The locals had it all to their poor selves. There was nobody in the backcountry. European tourists didn’t know how to tip (and there was no Euro, which today would be a welcome tip.) And trout tacos weren’t that bad, even if you had to resort to stockers caught right out of Mammoth Creek. But Town marketing efforts, mountain biking and golf have helped the crowds know how nice it is here in the summer. And that is not likely to change. In some recent years the best financial quarter for local businesses was the third quarter (July, August, Sept.)

And for true real estate watchers, one giant change from the 80’s is the transparency of information. Listings of homes and condos for sale and other real estate related data was exclusive and proprietary to the industry players. Looking back it is almost comical how the brokers controlled the information. Today it is all out in the open. Peruse all the various websites of the Mammoth brokerages and agents and a truly analytical consumer can be more knowledgeable than most of the active agents. And trust me there are plenty of Mammoth wannabe owners who are watching intently. The challenge for the modern agent is to bring added value to the process––more then just regurgitating the information they see on the computer screen. (Where the hell is Mala Ulice Street?)

In the end, the immediate drop in Mammoth real estate values should resemble the 90’s more than the 80’s. If we can just get past the hysteria and mindset of the inflated asking prices following the Starwood acquisition of MMSA and the era of toxic loans. Of course, you can always drop down a big deposit on a unit at the Ritz. Or you can go to Vegas.

Mammoth Foreclosures 1.0

Real estate foreclosure rates are accelerating to staggering numbers in many large and small marketplaces across the country. Here in Mammoth, foreclosures are moving at a different pace. Presently, there are fewer than ten lender owned properties in Mammoth. Having just completed an actual sale to a new owner and placing two other lender owned homes into escrow, I’m getting a clearer picture of how the foreclosure process is going to work––and some of it will vary lender to lender.

The Internet is playing a major role. The information is out there. And the flow of paperwork from the asset managers to the agents, and back, is all electronic. Decisions can be made quick. And the lenders and asset managers are real sellers. There’s no emotional attachment to the property, no memories, and no delusion to what the property will sell for now compared to four years ago. Each lender has a particular set guidelines and processes––and offers need to be presented in a precise format according to those guidelines. Weeding through all of this paperwork and procedure can be very time consuming. Many of the asset managers are on their own learning curve. Some are handling hundreds of files.

Each property is evaluated with a series of appraisals (by appraisers) and Broker Price Opinions (BPOs) by local real estate agents. So far the properties are being listed at attractive prices. Properties are sold “AS-IS, WHERE IS”. And the lenders don’t have the money to make significant repairs––even if the property needs it. Buyers offering 20% to 40% below the asking price (and they are) are fooling themselves. The Mammoth market isn’t there yet, and only the future will tell if it gets there. And time is of the essence––some properties are receiving immediate multiple offers. When most buyers live 300 to 400 miles away it becomes difficult to view the property. But at least the skiing is great so the trip is worth it.

As we get through more of these transactions we’ll learn more about the whole process. But how will all of this impact the larger market in Mammoth? After all, a rash of foreclosures can destroy values in a local market. My conjecture over the past couple of years has been that the number won’t be excessive. So far, that is what we’re seeing, especially in relation to other markets. Those owners that have been foreclosed on typically bought in the past three years and had multiple loans on the property. Some just gambled and lost. Because the Notice of Default-to-lender owned listing process is a 6 to 12 month process, we can see what the potential lender owned properties may be in the future. The number in the pipeline is minimal with no real growth trend noted at this time. This should be considered very positive for upholding values in the market.

What we have discovered through marketing these lender owned properties, and the balance of the market has displayed the same, is that there are plenty of buyers for and pent up demand for quality properties at a price point that lies 10% to 30% below the peak values of 2-3 years ago. That aspect of the market continues to impress me. When we received multiple offers within days on lender owned properties––that’s the proof to me. If the sellers get their prices into that buyer’s zone, then they are likely to receive offers. Other sellers are looking at this trend and are thinking they want to wait it out. The standoff continues. But will those buyers be there in the future years at these prices? We shall see. The foreclosure and lender owned properties should be a key and frontline indicator in the direction of the market. Stay tuned. I promise to keep my readers apprised of this segment of the Mammoth real estate market. Now back to all that paperwork.

Why Pre-Selling Is Bad For The Customer

It was bound to happen. It now appears I am censored. This Q&A written for the Christmas/New Year’s issue of the Mammoth Real Estate Times was rejected.

“It seems more than a column, acidic and rather negative...with a kind of nasty, whining tone.”

Personally, I think this is one of the most important columns I have written for the benefit of protecting buyer’s interests in this resort marketplace.

Q: We recently finalized the purchase of a Westin Monache unit and although we are pleased with our purchase the whole process left us with an uncomfortable feeling. From the original sales process, to the deposits, to the finalizing the sale prior to actually seeing the unit. The whole thing seems to be so one-sided, favoring the developer. Is this normal in Mammoth and what do you think?

A: The art of pre-selling condo hotel units reached its pinnacle in the past few years. The pre-selling methodology has been used here in Mammoth and in resorts all over the world. Intrawest proved to be masters of the process and many developers and brands attempted to replicate the process. In retrospect, the era created a whole new language of real estate terminology and made mini PT Barnums out of otherwise harmless real estate salespersons. The continued believers will just call me cynical, but this whole process, in my opinion, violates some real estate fundamentals.

Pre-selling evolved significantly in Mammoth at Juniper Springs Lodge in the late 90’s. Intrawest’s consulting sales firm arrived in town with the slickest of marketing materials (anybody have a copy of the video “On the Shoulders of Giants”?), finely polished and persistent sales training, great promises of forthcoming amenities and services, and techniques with catchy names like “mail drops” and “launches.” A really big show, to say the least.

The success and momentum carried into the Village and has recently culminated at the Intrawest built Westin Monache project. Over the years the cast of characters and cheerleading team changed repeatedly. (We discovered the value in not having continuum of thought.) And the attorneys went about refining the contracts to comply with California Department of Real Estate requirements while incessantly weighting the provisions toward their client, the developer. Some buyers walked away disgusted and others gleefully kept consuming the divinity. One of the primary sales strategies was to build a core group of repeat buyers with “priority” status––getting first pick at the choicest units in the next offering as well as other sycophancy. All of it perfectly delivered with superfluous but flowery “sales language.” Another strategy was that the sales team members were prolific buyers too.

Once the buyer had the “privilege” of selecting a unit (oh sorry, I always forget, they’re “suites”) at the sales event, the buyer was required to place 10 percent into the escrow. Sometime shortly thereafter, at some trigger point like the completion of framing, the buyer was required to place another 10 percent into the transaction. Then there was a 2-year or more wait for the completed product. The projects were craftily phased to rush the closing as the buildings and amenities were still under construction (just go visit the Westin for confirmation.) Many buyers closed without ever seeing the completed real estate. Of course, that was okay because many were buying on speculation because they were promised an increase in value along with great rental income (shhh…don’t tell anybody.) In fact, at the beginning of the game many units were double-escrowed by the time they were completed.

Ultimately, many of the buyers became disenchanted with their purchase because it didn’t live up to the promise. Granted, there were many obstacles in delivering the vision. We can all imagine a wider profit margin for the developer was the primary one. But early-on nobody really cared because the units had appreciated in value. (You could have bought the worst properties in Mammoth during that era and made the same profit margin, if not more.) And the sales team members and “customer satisfaction representatives” of the developer were so polished at handling the objections. The bulk of the commissions had already flowed to the sales team to live on so they were especially incentive-ized to see the successful closings.

But as the escalation of values has slowed and even moved backwards, the cracks in the walls are becoming more evident (no pun intended.) And is it surprising that the Intrawest tents are nearly folded and all but vanished from town? Resale values in the last Village project are back down to their original pricing, if not heading lower. Based on the calls and emails I’ve received, many Westin buyers are/were looking for “outs” in their purchase contracts. Unfortunately, they’ve already handed over 20%. And just ask anybody who has a profit, commission interest, or employment in these deals and “Paul is crazy!” And yes, I am. Thanks for noticing.

So why do I have such a problem with pre-selling? After all, it worked great for so many (while the market was going up.) Well, here is why. The basis of a normal real estate transaction in California is the DUE DILIGENCE allowed the buyer. It is absolutely fundamental. A buyer needs to have the right to perform inspections of the property including an inspection of the physical plant and site, the finances of any associations, the matters effecting title, etc. Not only is it their right, it is their obligation. And the completion of the sale is contingent upon that due diligence and what is discovered. Now maybe buying something off Ebay is okay, but when buyers are plunking down a lot of money AND taking on substantial liabilities (like large, growing common area fees) they deserve to touch it, feel it, examine it, and let their advisors do so too if they choose. When a transaction has “seller reserves the right to change, modify…blah, blah, blah” plastered all over it, and you have to wait 2 to 3 years for the finished product, it spells RUN! to me. Many things can change in 2 to 3 years.

For example, I attended a recent new owner’s walk-through at the Westin (I didn’t sell them the unit.) They had already closed escrow. I think they were a little shocked at how small the unit was, and that the furniture barely fit, and that the refrigerator was hardly big enough for a six-pack, and that there was no garbage disposal in the kitchen sink, and on and on. And they couldn’t even stay in the unit because “the building isn’t finished.” (They did get an incentive/credit for closing early.) I got the distinct impression that if they didn’t already own the unit that they would not be all that excited about ponying up the money to buy it. They probably would have turned around and walked right out––like I’ve seen many potential buyers do at a property they don’t like. And it wasn’t about feng-shui.

Beyond what the physical plant has to offer, these buyers were marketed a professionally managed rental program (“front desk”) and common area management––including a financially sound and well-budgeted association. Promises, promises. (Meeting and maintaining the “Westin standards” is probably their best ally.) These projects are heavily dependent on propane gas––boilers, gas fireplaces, protecting plumbing from freezing, heat traced walkways, etc. How do pre-sold buyers get to know where these expenses will escalate to? Are the proposed budgets grossly underestimated? The past decade and personal experience has shown it costs a lot more to operate and maintain the common area than originally projected by the developer and their consultants. Imagine that.

In the daily real estate practice in California the buyer’s deposit is protected by the DUE DILIGENCE allowed for in the agreement. And most often that deposit is a small fraction of the purchase price––usually 3 percent or less. As I said before, in these pre-selling arrangements the buyer has 20 percent already tied up. The developer’s contracts differ, but for non-performance by the buyer the first 10 percent is likely to be lost and the second 10 percent will be tied up in some sort of legal quagmire. Some privilege. Some recent buyers have seriously considered walking away from the 10 percent but are concerned about what will happen to the second 10 percent. Outside of some mythical, guaranteed escalating real estate market, this is no way to be a buyer, in my opinion.

In this next era of real estate, I think waiting to experience the finished product, waiting to see how the property is managed––from hospitality, to services, to finances, will be the way of prudent buyers. And by-the-way, the speculation days are over. Now you’ll be able to book the unit and be a guest long before you’re an owner. That will be refreshing.

Happy New Year!

The VRBO Phenomenon, and Where It May Take Us.

VRBO’s presence and success is growing dramatically. What is VRBO? VRBO is www.vrbo.com or vacation rentals by owner online. The website is a relatively no frills but highly effective portal for over 90,000 vacation homes available for rent worldwide. In the past 15 years many websites were incubated to link resort property owners and their potential renters. One very successful one started right here in Mammoth. But VRBO appears to heading towards becoming the granddaddy. Many owners and renters utilize more than one site, but VRBO is rising to be the primary choice.

In Mammoth, owners of condos and homes go about offering their properties for rent. The owners pay VRBO a fee to advertise their properties including a photo gallery, extensive description of the features and benefits, rental rates, availability calendars, etc. Potential renters get to view and compare properties and emails and phone calls are often exchanged. Negotiations can occur based on conditions (not likely for prime times.) The potential renters get scrutinized by the property owners (one of the favorite aspects for many owners.) And there is no management cut like with a major reservation company (35% to 55% in most cases.)

It’s not for everybody. But it is becoming increasingly and incredibly popular for owners and renters. Owners typically collect the rents as well as security deposits and a cleaning fee prior to the stay. Many newcomers to the program emulate the style and systems of existing, successful owners (each market, like Mammoth, has different issues.) And a whole new level of industry is evolving and growing in Mammoth to serve the needs of owners and renters. Beyond the basic absentee homeowner services and snow removal, a specialty menu of “concierge” services is available to suit the needs of owners and renters––from daily housekeeping to mints on the pillows to pet services.

Part of the popularity of VRBO is driven by simple economics. Owners of vacation homes are looking for more net cash flow and are willing to be part of the process to earn it. Even negotiating rates during the “off season” periods can produce solid revenue––sometimes renting for weeks or months at a time. The renter is taking advantage of the process and benefiting economically too. The system even allows owners of properties to trade times in their resort properties. And email is a superior enabler in the process.

All of this stirs up the old debate of nightly (transient) rentals in single-family homes here in Mammoth. When the Town incorporated in 1984, the ordinance prohibiting nightly rentals in the single-family neighborhoods was rapidly put in place. This is very unlike many (most) mountain resort communities where freestanding homes are prized rentals and large bed tax generators. (The Town of Mammoth runs on bed tax.) The Town knows all of this is going on and is certainly in a quandary. Policing and enforcing this activity is an enormous task. On the other hand, what municipality doesn’t want tax revenue––especially the kind they don’t have to share with anyone else? And some of the local bureaucrats still remember all the Town staff layoffs and downsizing of the 1990’s.

So can the community continue to miss this economic opportunity? One of the problems is that second homeowners don’t get to vote in local elections. And some owners feel they have “legal” ways around the ordinance. Recently, someone forwarded me a copy of a letter from a law firm in Jacksonville, Florida that was sent to the City Attorney for Sedona, Arizona. Apparently, this law firm has successfully overturned a similar ordinance in the City of Key West and are joining in the fight of a similarly proposed ordinance in Sedona. They claim that they have been successful in proving that these types of ordinances are “constitutionally defective.” They assert that such an ordinance violates the property rights laid out in the Constitution.

The convergence of demand for greater cash flow in Mammoth properties, the desire for increased Town bed tax revenues, and the growing popularity (and usage) of the Internet and websites like VRBO, is likely to bring this debate to a head. There is no doubt the renting consumer loves renting single-family homes. Or maybe the Town will just leave the second-home owning and renting attorneys alone and we’ll just continue to muddle through. Stay tuned. I think this is on the verge of coming to the forefront. And slower economic times tend to drive these sorts of things out of the closet.

Broker's Report, December 3, 2007

Broker’s Report Dec.3––At this point in time Mammoth’s real estate market can only be diagnosed as having some sort of split personality/schizophrenic disorder. But October and November did witness a slight uptick (from almost nothing) in activity and sales, and that wouldn’t be including the closings at the Westin. What is the evidence of all this disorder?

First, the big news-and-noise makers are the Westin Monache project (including a ribbon cutting this last week) and right next door the Staubach/Cypress Equities group announcing a deal signed with Ritz-Carlton. Normally trumpets would blare and the local real estate community would be busy putting transactions on the board. But from what I’m observing, many of the Westin buyers are grudgingly closing (some early closers were offered incentives/credits), some units that close immediately come back on the market in the Mammoth MLS at a price just enough to cover costs, and the developer (Intrawest) is placing units back on the market that appeared to be previously sold. And some of the under-contract buyers are no longer able to qualify for and finalize their loans. The undercurrent is beginning to resemble a riptide.

Meanwhile, Roger Staubach and Cypress Equities appear to be full throttle on developing the Ritz-Carlton Residences on the nearly seven acres right next door to the Westin. They plan to be open in two years. Sounds great to me. The only problem I see is they are forecasting entry-level prices at $2 million. The comparable units at the Westin are sucking wind at $500,000. And comparable units in the Village will sink below $400,000 if it doesn’t snow soon. And this trend isn’t just Mammoth. Check out the Trump-labeled projects in places like Chicago and Baja. Or condo hotel projects in Florida. Am I really missing the pent up demand for an “ultra-luxury and lavish spa” condo hotel project in Mammoth??

The high-end home market has the same split personality. High quality homes are under construction all over Mammoth. Only a couple are being built on speculation. I count ten new high-end homes under construction just in the Bluffs. And check out the monster homes under construction in Juniper Ridge and Grawhawk. These are some seriously expensive homes. And yet there is an inventory of high-end homes for sale––some of them brand new––that have sat on the market for years. (Who is servicing that debt??) My company is marketing a high-end “government surrendered” home in Grayhawk. The attention it is receiving from potential buyers is significant. It’s basically a real nice $4 million dollar fixer-upper. Personally, I like the home right down the street at just a little more, and it is brand new and has much better finish work. But it doesn’t have a bowling alley and an indoor lap pool.

The buyers and sellers continue in a bipolar state. There really are buyers out there, but few have a sense of urgency. Most want to throw out low-ball offers to see who moves and who doesn’t. Some are going to contract with steep discounts. And some are just waiting for quality properties/locations and are willing to pay a little more. (Buying on price in Mammoth doesn’t make sense over buying quality and location––no matter how low the price is, especially in the condo market. That only worked when the game was on tilt.) But the sellers, for the most part, have no sense of urgency either. “Oh let the listing expire, we’ll try next year.” or “We’ll just keep it and give it to the kids.” The other out is foreclosure, and we only have a handful so far.

Developers are sitting on substantial amounts of new-but-unsold inventory all over town. From Snowcreek Lodges to Stonegate to Gateway Village to Tallus to 80/50. So the mindset is to build more. The “Berner parcel” just closed escrow in the Village. This is a smaller parcel on the corner of Forest Trail and the newly aligned Berner Street (the realignment created the new parcel where the “1” was going to be built.) According to the agents involved, the buyer did “considerable due diligence” and is anxious to move forward. (I hope they did the Environmental studies––that used to be part of the old County and Town mechanical yard––back in the days when they use to dispose of stuff like oil and brake fluid right into the ground.) Of course, the village at Whistler was built on the old garbage dump. Maybe we’re on to something.

And now we have local brokers who have little experience, and who have never been through a market cycle, calling the bottom of the market (March 2008?) And east coast and now Texas money poised to make Mammoth an “ultra-luxury” resort. And more long-delayed improvements like the airport and ski-back trail stuck in legally contentious and seemingly nebulous/endless environmental review. (If the Creator had to produce an EIR for the earth would the evolution of man been acceptable to environmentalists?) And based on casual financial information from the past few years––is the Ski Area more profitable in a drought year? (ahhh…the law of diminishing returns.) And more and more folks really questioning the destiny of Mammoth as a resort (ahhh….schizophrenia.) If only it would snow.

But just the other day my confusion cleared while talking to an old friend who was once the editor of the Mammoth Times and also served as a Mono County Supervisor. He departed Mammoth over ten years ago and today he works for the Governator and travels all over the state. He reminded me again why Mammoth is so special. While all the beautiful (and not so beautiful) places in California are overrun with roads and people and strip malls, Mammoth remains a wide open and relatively pristine place, one destined to remain that way because of the very “environment” energies we butt heads with. Throw in all the scenic beauty, the endless recreational opportunities, and the temperate climate, and what else matters? “These east coasters and Texans really do know something,” he said.

And there are some very good things coming to fruition. The late snow has allowed the Lake Mary Road construction improvements to continue and once this is all completed it will be a major change for the better. The sidewalk improvements (including much needed storm drains) to upper Canyon Blvd. look great too. Next year when it runs from Canyon Lodge all the way down to the Village, this will stand as a major upgrade to the “Slopes” neighborhood. It certainly can’t hurt the property values. Similar improvements are slated for Meridian Blvd. in the near future. The new library is just about completed and the new ice rink facility behind it is coming along nicely. Improvements at the airport are slated for this summer, but lets not jinx it.

The site improvements at Snowcreek Phase 8, known as CreekHouse, are impressive too. Now that the initial roads and structures are up, the site that we always believed would be one of the finest in Mammoth is proving to be just that. I think acquiring a unit overlooking the Mammoth Creek drainage will be about as good as it gets in Mammoth––unless you really need to ski to your front door. And with the Snowcreek Athletic Club now heading in a new, very positive direction under new ownership and partnered with the Double Eagle Resort and Spa in June Lake, the CreekHouse location looks even better. Now just get the back nine constructed.

The real estate inventory is stable––but plenty of expired listings and most of the condo inventory was either built or bought in the last three years. Now if it would just snow. Or turn back to summer.

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.

The Pretenders, The Pressured, and The Passionate

Fall with no snow is a lovely, quiet time in the mountains. The recent behavior of Mammoth’s real estate agents has become so telling. For many the level of passion is waning. I now classify the agents into three categories––the Pretenders, the Pressured, and the Passionate.

The Pretenders are a substantial group. They range from “retired but don’t know it” to “unemployed but don’t know it.” Many of Mammoth’s old-guard real estate agents and brokers should be moving quickly into their wonderful post-real estate lives, enjoying the fruits of their labor. Many have good health, sound investments and homes in warm climates. Life’s clock is ticking, but they have a hard time letting go of the last few deals (a little more for the nest egg) and the camaraderie of the business. (Being successful in the resort real estate business in a place like Mammoth can be hectic, but also rewarding in many non-financial ways.) But these retired agents are hanging on, taking calls on their cell phones from God-knows-where. The Internet and other modern technologies have helped make it all possible. But when their clients ask, “Can you go check on something for me at this property?” it becomes a little awkward to let them know they are lying on a beach somewhere (or they’re too busy watching FOX News.)

There are some trust-funders (trustafarians as they’re known) in the business. They keep plodding along to keep up the appearance of employment to insure good graces from their benefactors or to conceal their real source of financial well-being. Their real motivation is typically to keep up the pretend. Then there are the Pretenders who still dream of big bucks and a lavish lifestyle but have no real work ethic, no real skills or interest in the subject, and likely got to the party late. Hopefully, they have a positive transition to their next occupation in life. Basically, the Pretenders are all more-or-less harmless to the industry and they’ll make the Christmas party more enjoyable.

On the other hand, The Pressured are the troublesome lot. Most have serious hangovers that aren’t going away. They never dreamed the party would come to an end. And now they really, really have to generate business. They never fathomed prices could go down. They can’t comprehend that buyers won’t be pushed around, or rushed, or fall for “tactics”. Many have already spent the commissions on the deals they’re anxious to close on. And some are planning their move to the next “hot” resort.

The hype machine that served them so well the past ten years is once again being dragged out of the closet––new projects, the next release, “Rusty says this! Rusty says that!” But is anybody listening? The hype is appearing like acts of desperation. You can’t prime a pump with hot air. Do they think that more inventory is really going to improve market conditions? (I generally fell asleep in Economics but I still understand supply and demand.) Or a “launch” of a project facing the Canyon Lodge parking lot is going to launch the market?

The Pressured treat the next developer’s “team member” or “vice president” (we’ve seen a parade of these puppets) as the new messiah or all knowing. “Let’s see Joe, why don’t we just put the “1” on the Bell parcel and let’s run the Village gondola up San Joaquin ridge. And attach the words luxury and five-star to everything. It’s all part of the new vision.” “Perfect, tell the real estate community, we’ve got real momentum now!” The Pressured are pressing and they’re losing credibility fast. Plop, plop, fizz, fizz. The Pressured need to go home and watch Dr. Phil and Oprah. Or maybe they need to go to another success seminar.

Then there’s The Passionate––the truly passionate. You can tell them by their older vehicles and their simpler web sites. They know what’s on sale at VONS, not what last night’s special was at Nevados. They got into the business for one reason or another and learned to love what they do. They’ve enjoyed the broad variety of interesting clients they’ve met over the years and helping them achieve their goals. Most have seen more bad times than good. They’ve done more volunteer crap than the others know exist. There’s no “deer-in-the-headlights” look these days. And they can’t wait for it to snow.

The Passionate aren’t selling hype––they’re trying to solve problems. They’re trying to counsel their buyers and sellers the best way they can in this very different market. It is not always easy. And because they’ve seen it before they’re not delusional. Story telling hour is over. The times require good questions and careful analysis. They’re always learning. Things like location, good mountain design, thermal efficiency, solid homeowners associations, defect assessment, etc. are back to being relevant.

Today’s lessons (for me) are foreclosures, REOs, and government surrendered properties (and auctions.) Fortunately, there aren’t too many, yet––far fewer than I thought. We’ll soon see how aggressive the banks will be on pricing. The paperwork is horrendous. But there may be some good buys at some point.

Meanwhile, the clear weather has allowed crews to continue to work on the Lake Mary Road improvements. The work is looking great. This effort will restore some luster to the Lakes Basin. Now, I’ve got to get back to work.

And all The Anonymouses can chime in now.

The Past Does Not Equal The Future

I was having trouble getting ready for a vacation and meeting a deadline, so the Mammoth Times editorial staff asked me to pull out an old Q&A that might have some relevance. This column first appeared in the Fall of 1998 and is indicative of what was on people’s minds back then––a real turning point of the Mammoth real estate market and the beginning of the Intrawest’s influence. I think it is an interesting perspective. The vision and promise of sophisticated resort development including polished structures and amenities, quality (trained) staffing and performance levels, world-class marketing, etc. has sputtered at best.

In the meantime local reservation companies have become confident and more customer service oriented. Most have great Internet presence. More small businesses have sprung up to provide first-rate services to visitors no matter where they are staying. And new websites (like www.vrbo.com) allow owners to effectively and efficiently represent themselves.

So here we are almost 10 years later and the first “flagged” hotel is about to open. And many of the buyers with reservations are tentative or hesitant to close––they’re afraid that completing the sale will cost them more than losing their 10% non-refundable deposit, or that the “Westin” fees on top of the management fees will crush their return, or that Mammoth’s visitor, especially in this economy, will shirk the luxury for something more affordable. All of this is telling. And single-family homes are being openly rented on a nightly basis while the Town looks the other way. But one thing hasn’t changed––there is still plenty of demand to enjoy Mammoth’s great skiing, snowboarding, vistas and climate.

Blast From The Past.

Paul Oster has been on vacation, so we decided it would be interesting to run a Q&A from the past. Back then he seemed to be able to keep his answers short!

As appeared in the Mammoth Real Estate Times, early Fall 1998 edition.

Q: I want to purchase a condominium in Mammoth but really do need to generate revenue through a rental program. As Intrawest builds more and more of the “condo-hotel” type units in Mammoth, I’m afraid that my rental potential will diminsh greatly. What do you think?

A: First of all, licensed real estate professionals in California are restricted from calling them “condo-hotel” units so we will stick to the name resort condominium lodge units or suites. This issue seems to be a growing concern among existing condominium owners–especially among what I would call the “old guard”. Let’s look at some recent trends and some likely trends for the future and see if we can find an answer.

In the past year we have seen dozens of condominium purchases where the new owner has removed their property from the prior rental arrangement–primarily nightly rental on an established reservation program. Many of those condominiums have been converted into the new owner’s home. As values rise here in Mammoth, more and more people who once dreamed of owning their own free–standing home have come to the realization that a nice townhome is all that they can afford. Those buyers have and will continue to remove quality properties from the available “nightly rental” inventory.

Another trend, one that probably won’t go away for some time, is the baby boom buyer who simply doesn’t want to rent their property at all. They really don’t need the revenue, and certainly don’t want to give up their freedom and flexibility of usage. Another trend–employers and investors buying condominiums and converting them from nightly rentals into long-term (6-12 months) rentals. Condominium prices were so low that these acquisitions made sense compared to other investment opportunities. These factors are all reducing the number of properties available for nightly rental.

While Mammoth desires to attract more “destination visitors”, ones who are precisely the target guests for the resort condominium lodge properties that Intrawest and others build here, Mammoth is always going to be a drive-to destination. In fact, that is one of the criteria Intrawest looks for in a resort–a half days drive from a major metropolitan area. And southern California is a massive, mobile marketplace. Many of those driving will find the resort lodge units attractive, but many won’t. The idea of pulling the loaded Suburban up to the front door of a townhome is just too convenient. And our guests like to bring their toys. Nice, intimate condominium projects with adjacent pools and spas have great family appeal–especially in summer.

There are other trends, one is the prospect of more business. With more amenities, more marketing, eventual air service, improved hospitality, etc., there is just going to be more business. If other resorts are an indication, Intrawest themselves will end up being in the condo reservation business in Mammoth. One of their divisions or subsidiaries could end up being your rental company/partner.

Many people are unaware that Mammoth’s ordinances (established around the time of incorporation) disallow nightly rentals in the residential (RSF–Residential Single Family) neighborhoods. This ordinance is very different from other mountain resort communities where such rental is commonplace. The goal was to preserve the quality of those neighborhoods and Mammoth had lots of condos to fill the demand. There are factions in town that envision changing that ordinance. In fact, the town government itself recognizes the loss of tax dollars because such rentals occur anyway and the tremendous potential for revenue. Future demand could drive those changes. We’ll see.

Ultimately though, there is no reason to believe that the direction of Mammoth’s future will compromise your ability to generate revenues from your condominium. The more important factors will likely be keeping you property in a quality condition so it’s a desireable place to stay, and staying away long enough so that it can be rented. Afterall, Mammoth is becoming an even more incredibly fun place to be.

La Nina Is For Real.

Weathermen and climatologists are calling for a “La Nina” weather pattern this winter. La Nina is a product of cooler water temperatures in the adjacent Pacific Ocean. Well, I can tell you firsthand that we are in a La Nina condition. Satellite generated sea surface temperature maps are one thing, but witnessing it is another.

The last 6 or 7 years I have spent time on the Pacific during the late summer and early fall, mostly off southern Baja California. Having just come back, I can tell you the water temperatures are significantly colder. For instance, one of my favorite (and frequented) locations is almost 200 miles off of the coast and down about three-quarters of the Baja peninsula. In late August the water temperature was 77 degrees. In the past few years the early October temps are typically higher than the August temps. Two weeks ago it was 71 degrees, and three days later when we left it was 68 degrees. A little further down and technically in the Tropics, the water temps along the coast were higher, but not quite like the past few years. And one point along the coast about halfway back up Baja we hit water that was 58 degrees. La Nina.

For Mammoth, La Nina can be ambiguous. Climatologists say we’re at the dividing line between what should be wetter conditions to the north and dryer to the south. My recollection is that La Nina winters bring rain to town, snow on the Mountain, and they kill Tahoe because of their lower elevation. That equates to a good base, not a lot of shoveling, not many epic powder events but good wind-blown snow (the wind is howling here in Mammoth.) It sure feels like winter.

Meanwhile, there are sales on the board. Sales prices are down, but there are buyers at these lower price points. They appear to be solid transactions. Now let me sort through this pile of mail, email and messages and see if I can jump in and get back to business.

Broker’s Report, October 2, 2007

Broker’s Report, October 2––The warning signs all Fall into place––the days shorten, the leaves turn yellow, the kids are deep into school and the ski magazines come in the mail. It can be the busiest time of year for Mammoth real estate sales and some years the buyers have come in hordes, but this year it is down to a trickle. But those that are here are typical––and from what I can tell the hottest item this Fall is a Juniper Springs Lodge condo. That is if you’re not building a multi-million dollar custom home (some of the newest ones are REALLY impressive). Go figure.

The volume of closed sales, or the lack thereof, in the past couple of months tells me very little about the market itself. From everything I can read, the Mammoth market is no different from almost every other real estate market in the country. Real estate has become today’s national black eye. But I’m still watching inventory numbers, foreclosures, and seller sentiment and behavior. I’m also observing the impacts of seasonal (long-term) rental demand, an outflow of transient construction workers, and local business attitudes towards obvious lower tourism numbers.

A sign of the times: The recent, rare sellers who have made significant price drops in their listed asking prices, or even through negotiation and subsequent escrows, have suffered great disappointment. Jittery buyers have walked away from what would have been considered outstanding buys just 6 to12 months ago––and very little of it had to do with interest rates or qualifying. In most segments of the market it appears we have moved back to the values (actual sales) of the late 2003 or early 2004 timeframe.

The inventory numbers are interesting and telling, or maybe confusing. Rather than escalating like many markets, they are making their typical seasonal adjustments––reaching a peak around Labor Day and now falling off. The humbled sellers are taking their unsold (and sometimes completely unlooked at) properties off of the market or letting their listings expire. Some are looking for long-term renters, some are just willing to wait, and many are just indifferent (indifferent and “motivated” seem to be the same thing today). Most continue to possess Mammoth bullishness for the long run while accepting the current bearish market conditions. I guess they have been conditioned to “not feed the bears”.

The foreclosure market is a little trickier to grasp. With lenders overwhelmed by defaults in California and across the country, the foreclosure process has moved into completely new territory. Lenders seem prioritized to move quickly on the obvious specuvestor defaults––properties/borrowers/”files on the desk” with no hope of, or desire for, redemption. We’ve seen a few of these cleaned out of the Mammoth market already. The bank REO (real estate owned) departments are so backlogged that we are just beginning to see those appear back in the marketplace. Many of the local defaults (and there aren’t that many) that do come into the information pipeline appear to be worked-out––forebearance of some sort (especially if the property is on the market), new loan terms, etc. Ultimately, as I have repeated in the past, the buyers in Mammoth of the past seven years were more substantial than in many of the other markets. We’ll find out just how substantial in the coming months and years.

The foreclosure arena does have compelling sidebars. In a classic episode of Mammoth real estate history, the high profile buyer of the past few years who put to escrow (and subsequently never performed) many of Mammoth’s restaurants and who chased many commercial property owners (and gave them delusions of valuation grandeur), himself ended up with his home at a trustee’s sales. But rather than the bank taking the property back, it was in-fact purchased at the sale (continued evidence of the demand for quality single-family homes). Another aspect that may go relatively unnoticed is the foreclosure or “calling” of many privately held notes. In this past cycle, large and small developers accessed local sources of private money. That money is sunk into both improved and unimproved properties all over Mono County. And some of it is sunk into some very expensive spec homes here in Mammoth. And now some of the borrowers are unable to service the debt and the private lenders want their money. The disposition of all of this will be fascinating. There will be reverberations. There will be opportunities.

I’ve received numerous inquiries about the Westin. These units are scheduled for completion in the coming months and they are booking rooms for the holidays and beyond. But buyers with contracts and 20% “in” and 10% non-refundable (hard) are beginning to have their own reservations about closing. They’re concerned that walking away from their 10% may be a better business decision than closing and going onto the rental program and potentially selling in the short term (or longer). Many are asking my advice because I’m not their broker in the transaction so I don’t have a commission to lose. (And by the way, most of those commissions were pre-paid by 50% or more.) Some of these buyers/investors are balking at the fees paid to Westin off the top of rentals and then the management fees too. They’re also watching values in the Village slide. Some can’t sell the properties they want to “roll in to” (1031) the Westin. And interest rates are up. Some buyers have simply had lifestyle changes since they signed contracts 2-and-a-half years ago. But my guess is that it is primarily economic. (Ya think Paul?!)

After some of these discussions, here is what I’ve discovered. Many of these buyers didn’t realize that the Westin is a steel and concrete structure with true ventilation (like a real hotel)––hence it will be quieter and far more comfortable than any other units built in the Village. It should warrant the higher nightly rental. It will definitely be more popular in the summer where the lack of ventilation, or the hokie air conditioning, in the Village is considered a joke. They also aren’t aware of the additional efforts that are being made to make the operations run smoothly from the get-go and the value of having “Westin standards.” They are also not really cognizant that the prices they are paying aren’t more than what the same sized units in the Village are selling for––so in a re-sale scenario they should be competitive. (I’m essentially re-selling/re-informing the features and benefits of the property––where the hell are their agents?)

But the thing that really stood out in these discussions for me was that many of these buyers didn’t understand that the “next better” condo hotel property was far off in the future. Due to planning and construction timeframes, the current credit tightening and financial markets, overall consumer demand, etc., the Westin is destined to be the premier lodging in Mammoth for at least the next 3 to 4 years, maybe longer. That in and of itself could make these units worth closing on. And something else that will certainly be worth watching is that some of these new owners intend to rent their units on their own through services like www.vrbo.com. And if they are successful (and they will be), how the entire Westin Monache operation will be affected. Business models all over are changing rapidly.

What else? Long-term rental rates/values appear to be declining for the first time in years. Probably a combination of: more rentals in the pool due to speculative buying, the increasing volume of deed restricted/government sponsored housing, the out-migration of transient construction workers, the below-average ski season last year, and quite frankly, we’ve probably pushed the limits of affordability too far…The Ski Area continues to slip in the annual ski magazine polls but continues to report increased and record profitability. Maybe because it more resembles a hedge fund every day…The upward move by the Canadian dollar (or is that the downward slide by the U.S. dollar?) will only make it more expensive to ski in Canada, namely Whistler. Will that help the U.S. resorts and Mammoth? And will we attract more European skiers and tourists? I hope they don’t get rid of lift lines!…The new branding efforts continue with more workshops. We seem to be heading more towards “organic” than “luxury”. The “branders” need to be at the new live theater––at comedy night…And to dispel the rumors, jumbo loans are available and the rates aren’t that bad. You just need a good FICO score and a down payment. And mortgage brokers are getting squeezed out of the market. Mortgage bankers and direct lenders are highly recommended. (Sorry brokers, just a working observation.)

My firewood is stacked and my psychiatrist has prescribed a couple of weeks on the warm Pacific to cure my recurring nightmares of ex-Intrawest salespeople promoting a new multilevel marketing scheme for an anti-aging juice blend. (It does seem like a logical segue in the Boomer focused marketing world.) Hopefully there will be skiing when I return or soon thereafter––psychiatry is good.

Let’s Look At The Bright Side.

Q & A from the October issue of the Mammoth Real Estate Times, out today!

Q: Some of your recent columns have been rather critical and negative. But we know you can be very positive, so tell us some of the positive things you see in the local market. Tell us what you’re seeing that we, the second homeowner, aren’t seeing.

A: Now that I’ve made everybody feel great about the sorry state of the Village, increasing interest rates on jumbo loans, stubborn sellers and the foreclosure market, let me get to the good stuff. So here comes the spin.

Poor old Harry S. Dent, the economist who wrote all of Boom Ahead books, and who I’ve/we’ve been quoting and referring to the past ten years, got thrown a curve ball. Dent predicted that 2006-2011 would be the prime Boom time because the baby boomers would be in a double spending cycle––essentially the front edge and the back edge of the demographic wave both hitting peak spending simultaneously. What Dent wasn’t able to predict was the monetary policy of the early 2000’s combined with liberal mortgage programs that created a very low interest rate environment that subsequently moved the great boom forward a few years.

But the good news is the demographics never changed. But the whole real estate party of 2002-2006, combined with events like the sale of MMSA, made some boomers buy earlier than predicted, while others decided to delay. For Mammoth, the demand driven by boomer demographics is still with us. So now the market is sorting out the speculators and the non-committed. And where it is going to end up will be a function of supply and demand. But everyday we see another silver-haired 60+ year-old man (60 is the new 40, right?) and his lovely wife (grandma) come to town looking for their little piece of Mammoth nirvana. And most have the dinero to make it happen––and then some.

So while the demand is finding its way, we still have the same old problem of scarcity. While there is plenty of land, they aren’t privatizing any more of it, except for Rusty––think Banff at Mammoth, a.k.a. the 20 acres at Main Lodge/Mammoth Mountain Inn. But none for us “poor slobs.” And what the boomers are also figuring out is buying property in common ownership (condos) is less appealing all the time––especially newer ones with poorly formed and under budgeted homeowners associations or aging ones with large, looming assessments.

The really good news is that there are still bargains in the single-family home market. It is almost an oddity that this market condition still exists. While there is plenty of land remaining to build condos, there isn’t any more remaining for the development of single-family lots. And at the build-out of Mammoth, condos will outnumber homes almost 5 to 1. And considering all of that, and the higher permit fees to build a new home, you can drive around Mammoth and find excellent buys on single-family homes and lots through most of the price ranges. Even funnier are the boomers buying these 2000 square foot “second homes” and after they start moving in they complain “it isn’t big enough”. So hence the next construction trend––add-on, remodel, maximize the lot and don’t forget to leave enough room for RV parking.

The other good news is about the airport(s). Technology is going wipe out all of the past obstacles (maybe even the dreaded cross-wind). While it is very likely a variety of regular air service will be established in the next few years, the advent of very light jets (VLJs) will change everything. If you don’t believe me, do some research of your own. Small jet traffic is already significant and growing at Mammoth airport––privately owned, corporate, chartered, fractionals, etc. Jet fuel sales are soaring. Just because you don’t always see them on the tarmac when you drive by doesn’t mean they aren’t coming and going with regularity. And the VLJ industry (including Honda) and the commercial services that will come with it will change everything. Much of it is about efficiency and speed. We’re right on the inception and Mammoth airport is the perfect venue.

Some of the other good things are a little more subtle. The new wing of Mammoth Hospital is open, for those who need a visit. Public transportation in the summer is an expanding and growing hit amongst locals and visitors. The new library is shaping up and I can’t wait to see what the inside is going to offer. And the hopes for a new, viable ice rink are actually “in the ground”. And one of Mammoth’s old movie theaters is successfully functioning as a venue for regular live performances.

On the really subtle and rather boring BUT very important side: the fire protection in Mammoth Lakes has and continues to take a major step forward. The firebreak around the north end of town (Shady Rest/Knolls Loop/Scenic Loop) that was started in 2003, and looked horrible, is now cleaned up and looks fairly natural and had made for more enjoyable riding and cross country skiing. The fire danger in the Valentine Reserve and the south end of town is being addressed. The local Department is making property-by-property assessments of not only the residential properties (especially those in the more forested areas) but of commercial properties too. All of these efforts are long overdue and very commendable.

This past summer gave us some new perspective. While the Wellness event was canceled, the events centered around music and alcohol were huge successes. (And the general consensus was that the alcohol wasn’t abused––just enjoyed.) I’m beginning to visualize trolleys full of folks pouring into Shady Rest Park for all kinds of events. Where’s the Grateful Dead when you need them? Oh Lord, I see people having Panic/panic attacks already.