As resort real estate seeks to recover from its Tiger Woods-esque fall, it must return to the basics, develop smaller niche projects in shorter-term deals, forget about pre-sales, target practical buyers seeking value rather than an investment, and largely avoid hotel and fractional projects.
Those words of wisdom came from Harry Frampton, Mark Smith and Craig Ferraro of East West Partners, the longtime Western resort development company whose “Strategies on Future Real Estate Development” drew a full house at the National Ski Areas Association Convention on May 5, 2011. As for those exclusive, gated communities with signature golf courses that sprouted up in so many mountain valleys over the past two decades? They are anathema to today’s real estate buyer, who’s more likely to be drawn by an “organic vegetable garden” that provides a “small sense of community,” quipped managing partner Frampton.
Smith highlighted a classic real estate photo from the 1980s of grandparents, parents and their kids smiling around a Christmas tree to illustrate how the target customer hasn’t changed. “It’s an experience people are willing to pay for, the family gathering together. It’s even truer now.” Developers who do find the right niche can succeed, even in an over-supplied market, Smith added. “We started (East West) in the 1980s with a 10-unit townhome project in Beaver Creek, when there were 350 unsold units. I kind of offer that as some hope.”
CFO Ferraro sees reason for hope in credit markets. “Lenders will now talk to us. Before they wouldn’t even talk to us. They’ll be buying us lunch again soon. They do have to lend money to make money,” he said. In the new post-recession world, developers must have a committed equity source, might have to consider multi-bank partners, and will be held responsible for personal guarantees, he said.
Noting this is the fourth recession he’s endured, Frampton recalled that the 1986 Bradley tax act was supposed to kill vacation condo sales but was followed by almost two decades of growth. There are still a staggering number of Baby Boomers, the super rich are getting richer, and there are niches to be served. But Frampton doesn’t see warm-bed resort hotels being built unless they are aggressively subsidized by town governments, and says fractional projects make financial sense only in the best locations.
The East West presentation closed with these observations: “The definition of a good project is one that ends,” and “The next recession is one year closer.”
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