In this post I would like to continue my analogy that luxury car sales demonstrate why new luxury condo product coming to market now in Park City deserves a premium to the luxury product constructed 10-12 years ago.
Why did last seasons visitors seem to prefer the product offered by Apex and Lift to the older product in Canyons Village and Deer Valley? Since construction is just underway at Apex and not even started at Lift, What was the game changer for buyers? First of all, the past few years have produced a huge change in the ski industry with Vail re-inventing the economics of resort operation and development. No longer does operations take a back seat to real estate development for profits. Now last years sale of 650,000 Epic passes produces reliable profits for Vail's connected array of top ski resorts with little dependence on individual resort weather conditions. Recently a new collection of 12 leading ski resorts put together by Aspen Skiing Corp and KSL Capital Partners announced plans to build a similar competitive network built around seasons pass sales. Operations are now king and resort owners seem happy to avoid loading up on development debt and happy to off-load vertical construction and sales to developers like Replay Resorts and East West Partners. As I discussed in my July 6, 2015 uncategorized post entitled "Whats going on with Vail's new resort and how does it affect The Colony" Replay Resorts, who was selected as the master developer for the Canyons Village, introduced a fundamental philosophy that departed from past development thinking in the Park City market. Replay de-emphasizes on-site amenities in favor of natural beauty and existing attractions of the area. They believe that becoming an extension of the surrounding community and vice versa is a far more cost effective way of establishing a destination than building attractions inside the gates. Now we see this philosophy at work in the new Lift project which is Replay's first individual project in Canyons Village. Lift was launched on Feb 7th and currently 54 of the 61 units have been reserved and conversions to contract are underway. So lets assume in my "new car/used car" analogy that Lift units are like next years fuel efficient product not yet available to drive, but taking orders for future delivery (think Tesla Model 3 and Elon Musk). The 2005 - 2007 Talisker Club units are like the gas hungry luxury SUV's of the past that now occupy the front row of the used car lot, and the luxury hotel condo product like St Regis and Montage along with new contemporary townhouses on Main Street like Parkite and 205 Main can be seen as whats on the floor in the showroom at the end of a model year.
In 2005, the stacked flat projects in Empire Pass were the latest thing. They had direct ski access, quality finishes and in addition to minor amenities in each project (each project has a different personality) they all shared in membership to the Talisker Club which offered members access to ski and golf facilities plus fly fishing and other club activities. They also came with monthly dues plus market prices for food and fun. When an owner added HOA dues to club dues, it was a costly annuity. Since renters could not utilize club facilities, the only rental season was ski season. Empire Pass was a beautiful but lonely place in the other seasons. With many high split property managers competing for nightly rental business, owner returns were often less than HOA dues, Club costs and taxes combined. At the same time, the product was difficult to manage efficiently by the high profile management companies and slowly VRBO and one-off competitors chipped away at the business. The Talisker Club lost big money for Talisker through its attempts to offer first class service to very demanding members. Club facilities were overcrowded at prime times or empty at slow times. The original Park City government decision to allow almost no parking in Empire Pass other than in-building owner parking hurt club business and a free shuttle service largely for the benefit of renters operated by the Empire Pass Master Association resulted in an additional annual dues bill of about $3500 for each owner. Many owners chose to resign their Talisker Club membership rather than pay dues and add the $100,000 membership fee to their closing expense (owners were paid an 80% deposit refund within 60 days after closing), but many buyers who didn't see value in the club expense made offers that excluded the membership. Since resigned members in the waiting line either by choice of by terms of their resale were only paid their deposit on the basis of 1 refund for 3 developer sales, the line grew as development slowed and many members have been in line for years.
Now contrast that with the product being offered by Apex and Lift, Together with minor, but well done amenities like pools and fitness facilities, both projects take full advantage of Replays makeover of the Canyons Village base area which will have all season restaurant locations, nightlife, shopping and a connection to the Park City base area via the $50 Million Quicksilver Gondola completed last year by Vail Associates. At the Lift, units come fully furnished. Buyers will avoid working with individual designers who created individual decor at Empire Pass at luxury prices, product that now has little value in resales. This plan also contributes to a more standard rental product. In the last 12 years resort condo fashions have changed. Buyers seem to be looking for more windows, more light, expanded kitchens with more counter space, clean modern design and furnishings plus more emphasis on children's amenities. At Lift and Apex, the developers see their buyer profile as quite different from the Empire Pass buyer profile of 12 years ago. In 2005, the perfect buyer was someone who was rich and wanted to create their very individual second home where the owner and their friends and family could return every year to recreate the experience of previous years. Rental was an afterthought but tax write offs were important. Today developers see a new profile. They see younger buyers who want to experience different ski resorts, different communities and meet new people. These buyers want a lively, memorable all season experience and low ownership costs and rental income are important. In the last 12 years, the product and club amenities of the past have simply gotten older and a little out of date while the existing attractions of the Park City area continue to improve and expand. So now the question becomes how to compensate for these differences. The simple answer is price. The significant fact is that the "sticker price" (price/SF) of the new cars being ordered for future delivery which promise lower ownership costs, better rental potential and 4 season performance are being priced at significantly less than the used cars on the front row of the used car lot. Last season provides proof that new development prices are attractive to today's buyer and today's resale prices for the best used product are meeting heavy resistance. Even the luxury full service product offered at Montage and St. Regis whose prices are supported by far superior net rental performance than the Empire Pass stacked flat product, are quietly lowering end of ski season prices. Last month Montage lowered its remaining 17 developer units by an average of 6.6%. New contemporary town homes on Main Street are quietly lowering prices based on buyer resistance and lack of proven rental performance. Original prices at the 205 Main project were recently reduced by an average of 5.85%, but are still at substantially higher prices than the Lift and Apex units reserved to date. Second tier hotel condos like Waldorf Astoria have recently offered 3rd and 4th floor residences at prices below $650/SF with 12 months paid HOA dues.
Hopefully this message won't be misinterpreted as encouragement to raise prices of new product. Lift itself shows price resistance in prices above $1,000/SF for its Penthouse units. The message is that condo inventory in Empire Pass is substantially overpriced. At the right price Empire Pass properties will fly off the shelf, but the journey for current sellers will be painful.
