Excess not quite as cool anymore in Steamboat
Retooling resort development for a sensible era
May 23, 2010
Steamboat Springs — The era when real estate developers used increasingly elaborate amenities to differentiate resort properties is in the past. Taking its place is a new climate with buyers seeking out more sustainable projects that make economic sense in the post-recession era, Tyler Niess told an audience at The Steamboat Grand this week.
Niess, senior director of Intrawest's sales and marketing arm Playground Destination Properties, was delivering a keynote address at the opening of Economic Summit 2010.
"Amenities up the wazoo isn't what the sweet spot is or going to be," Niess said. "Buyers are looking at the overall carrying cost (of a vacation home purchase) and trying to make sure that makes sense."
Developers will be leery of paying for amenities and will shift that burden for creating amenities more fully onto the homeowners association, he added.
"If the homeowners don't want to pay for amenities, it's not going to be there," Niess said.
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That means the era when developments boasted of having signature brand golf courses, or even more than one signature branded golf course, are over, he said. Buyers are beginning to re-engage the resort markets, Niess said, but they are looking for smaller homes and trying to make smart purchases.
Cam Boyd, co-owner of Prudential Steamboat Realty, attended Niess' discussion and expanded on some of his points.
Boyd said club developments with golf courses or other expensive shared amenities can make buyers in today's environment apprehensive. That's because they have to consider becoming dependent upon the ability of the other owners in the development to continue to financially support expensive amenities in the long term.
However, Boyd said that in order to fully understand the shift in the perception of luxury resort properties, it's necessary to differentiate among property types.
In the case of condominiums near the base of the ski area, a significant portion of buyers are intent on capturing revenue from vacation rentals, he said. In that case, luxurious amenities are essential — ski vacationers want an above-average hot tub, for example.
"When I go on vacation, I'd like to have a nice pool and a workout room," Boyd said.
He agreed with Niess that buyers of single-family homes increasingly are interested in properties that will cost less to own.
"People are becoming interested in downsizing and having a really nice place," Boyd said. "They're looking for floor plans, a layout and quality that works for them. They may not want to pay for a 10,000-square-foot house with its higher assessed valuation and the property taxes."
In some cases, buyers may pay substantially more per square foot for a smaller home that won't cost as much to own. The same could be true of undeveloped land, Boyd said. Buyers might be willing to pay almost as much for a 20-acre rural estate site with good views as they would for a 35-acre parcel with higher associated costs.
That may be challenging news for people who already own property envisioned during the real estate run-up.
"People have to come to realize that conditions aren't the same as they were five years ago," Boyd said. "(Sellers) will have to take into account what people are willing to pay for."
Niess said it comes down to a change in buyer's perceptions of what cool is.
"Luxury won't be the catch phrase in the future," Niess said, and the goal of sustainability, environmental and social, will come to the forefront. Buyers will still be looking for high quality in vacation homes, he said, but they'll want it to be sensible.
"Excess isn't quite as cool," he said.
In the future
On the development side, Niess said, it's understood that investment capital is much more disciplined than it was five years ago. The difficulty of financing projects points to more scalable developments — perhaps 10 to 15 units at a time, he added. The product that came to be known as the condo-hotel isn't likely to reappear any time soon.
Following his talk, Niess agreed that developments already conceived or pending in Steamboat Springs may have to rethink their next stage. Intrawest, which already oversees a well-established interval ownership program, Club Intrawest, are actively wondering if timeshare properties will become bigger in the recovering market.
While timeshare projects have strengths, they also have downsides.
"Timeshare developments have really long tails," he said.
Developers are more attracted to projects where they can achieve 100 percent sales and move on, Niess explained. In a timeshare development, they might sell the first 30 to 40 percent fairly quickly and then spend years selling the last 15 percent.
In terms of marketing vacation homes, Niess said developers know they can't get lucky any longer by riding a wave of speculation. Today, they are operating in the era of "patient negotiation."
"I've learned the hard way during the last 12 to 18 months what it takes to get them sold," he said. "The dynamic has changed. The buyer is in control."
Good deals are at the heart of the current sales process, Niess said.
Where does Steamboat fit?
The good news, Niess said, is that the environment favors well-established resorts such as Steamboat that have loyal followings. On the challenging side, he said, the real estate downturn here was felt 12 to 18 months behind many regions of the country.
"New products have come on the market (since the recession set in), and we're going to have to absorb those before we can get to a recovery," Niess said. "There's still some pain to go through as we work through a lot of product that's been developed."
While there remain large sums of investment capital on the sidelines, Niess said, a great deal of personal wealth that drove the second-home market was lost during the recession and the easy money that fueled the last real estate run-up is no longer there to feed the machine.
Buyers are determined to find deals, he said, but at least they are engaging the market.
It's an open question whether economic recovery will take hold in time to capture the second-home buying urge of baby boomers.
Already, he said, it's expected that by 2012, a younger generation of buyers younger than the age of 55 will represent a greater vacation home market than the boomers do.
In the meantime, emerging vacation home markets in Brazil and Eastern Europe are catching the eyes of investors. In particular, he said, the South Pacific is a growing vacation home market for the increasing wealth emerging in China and India.