On August 14, BJ Adams and Company held our sixth annual Aspen/Snowmass State of the Real Estate and Tourism Economy Symposium, the upper Roaring Fork Valley’s only event devoted to in-depth exploration of real estate and tourism trends. For those who were unable to attend, or who would like a summary of what was discussed, this post is for you.
Company founder BJ Adams led the afternoon’s speakers by sharing that the plan was to deliver small bites of information at a time, with the hope that attendees came away with at least one big idea. She gave a glimpse into the current local economy — whose signs of recovery include a sold-out Saturday farmer’s market booth and brisk sales of expensive wine — and where it has come from since the Great Recession, which “changed the game for all of us,” she noted. That includes waking people up to the fact that, yes, Aspen/Snowmass does have to work hard to draw visitors. Explaining the continuing relevance of an event like the Symposium to explore local market trends, she showed that while the real estate market is indeed in recovery, it is still not as robust as it could be. While tourism is back and then some, real estate sales are still 44% off of what they were in 2006.
Here are more “little bites” from the afternoon’s speakers.
Randy Gold of Aspen Appraisal Group delved into the high-end residential and commercial real estate markets:
- High-end residential sales ($5 million and up) peaked in 2006-2007 but had a secondary peak from 2010-2012
- When sales above $5 million slowed down in 2013 it was mostly in the $5-$7 million range. Why? In Aspen, little quality inventory in that price range remained. In Snowmass Village, the unsettled situation in Base Village has affected sales.
- The best-performing part of the market has been the $10-million-plus range. 2014 sales are on pace to reach 2012 (16) or possibly 2011 (19), which was the second-best year ever.
- High-end sales should increase significantly in the next 12-18 months as developers bring more spec homes onto the market
- The commercial segment led the Aspen real estate recovery.
- The current commercial climate might best be described as “exuberant”: little available to rent or buy, strong demand, and capitalization rates that are “incredibly low” and continue to go down (4-6% the last few years).
- Many leases are being signed for $150-$225 per square foot, which Gold characterized as “huge rents.” A $200/sq ft lease on a typical 1,500 sq ft retail space equates to $25,000 per month, requiring a retailer to gross at least $3 million per year.
- About 5% of the total $24 billion actual value of downtown Aspen commercial space changes hands per year.
- Mark Hunt has bought 11 of his 12 downtown Aspen properties in the last two years. His portfolio encompasses 100,000 sq ft and he has spent roughly $80 million.
- Hunt “would probably agree that he has overpaid for everything he has bought,” said Randy, although in the next 5-10 years he will likely prove to have made some smart investments.
- Together, Aspen’s five major downtown landlords own 450,000 sq ft and 45% of the commercial landscape. The others are Woods/Mazza (11 properties), Garfield and Hecht (11 properties), Steve Marcus (3 properties), and Lowell Meyer (5 properties). It’s one of the reasons the market is strong and stable.
- The commercial core is expanding, largely due to the activity by Mark Hunt and Garfield/Hecht on the fringes of the commercial core, which are currently “B” locations.
- New buildings in the expanded core are asking significant rents, but it will probably be a few years before traffic will increase to those areas to justify it.
Michael Adams, president of BJ Adams and Company, gave snippets of the overall real estate market, leading off with a Hawaiian phrase that translates to, “The prosperity of the land is perpetuated by the integrity of its people.”
- Utilizing a motion bubble-graph, he was able to quickly show the historical changes in dollar volume in relation to to sales and inventory each year since 1978 in each of the Aspen, Snowmass, and Basalt markets. He was able to demonstrate the clear effect of recessions and other economic or political events over time. Accelerated growth in the mid-1990s was interrupted in 2001 before reaching a balanced market in 2005. In 2006, signs began pointing toward a steep decline but people didn’t see it. Of the recovery of the last few years, Michael notes: “The growth isn’t dramatic; it’s just relatively steady and slow.”
- International buyers represent just 6% of all the property bought in the US — and that number is even less in Aspen/Snowmass, despite what people might think. Most international buyers keep their investments in metropolitan areas within the US coastal areas.
- In summary: in Aspen, leading the way, prices are steady to rising in key areas; Snowmass is “all over the place” due to political issues; and in Basalt, prices are rising again because of lack of inventory.
- To finish, Adams demonstrated how their market index, a compilation of various market data measurements and rates of change in those indicators, is very closely aligned with changes in price per square foot averages, preceding those changes by approximately 18 months.
Mark Harmon, managing partner and a founder of Auberge Resorts, was the keynote speaker. His talk was entitled “Meeting the Demands of Today’s Resort Guests: Delivering a Unique Experience that Guarantees Return Business, Relevance and Economic Sustainability.”
- 9% of people in the US make over $150,000 per year, but they are drivers of tremendous spending. They buy 37% of vacation homes, for example.
- The number of affluent households is expected to double by 2020.
- Affluent travelers take 8 leisure trips per year and spend about $5,000 per person per trip.
- Affluent people have realized that it’s not the things they’ve amassed that make them happy, but the experiences. They’re looking to live life, have rich experiences.
- Other trends in travel among affluent people are customized experiences, family/generational travel, luxury accommodations that tread lightly on the land, and increased travel by Millennials (18- to 30-year-olds) and seniors.
- The rise of “non-hotels” such as airbnb and VRBO will detract from hotels, but not much. Peer-to-peer travel is welcome because it brings more people to a destination and activates that market.
- The Hotel Jerome renovation was “enormously expensive,” with “no relief from the City” in terms of permits and cost. The only reason it worked out financially was because the cost basis was considerably less for the current owners, who purchased the defaulted note for the property during the economic downturn.
- “It’s an extremely tough deal to build a luxury hotel in this town,” said Mark, who speculated that it might be a little better with the recent passage of the lodging incentive package.
- We are in the second half of the current real estate cycle, so now is the time for reinvestment while interest rates are low and capital is readily available.
- Hoteliers should reinvest 5% per year into their properties, so “you have to have a vibrant economy, you have to have business turning over to keep pace with the property,” says Mark.
- Aspen is losing its market share as the competition gets stronger. Because it’s difficult to get to and expensive, Aspen has “self-qualified into a very narrow market.”
- Ending on an upbeat note, Mark reminded: “You have an amazing story to tell in Aspen — perhaps Aspen doesn’t tell it enough. You can live richly in this town .. it’s truly a magical place.”
Watch the full 2014 Aspen/Snowmass State of the Real Estate and Tourism Economy Symposium at GrassRootsTV.org. Search for “Symposium.”