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SUNDAY, MARCH 09, 2008
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
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