Second Home Market Outlook and State of the Mountain Resort Markets - - PowerPoint PPT Presentation

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Second Home Market Outlook and State of the Mountain Resort Markets - - PowerPoint PPT Presentation

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Second Home Market Outlook and State of the Mountain Resort Markets Park City, Utah March 31, 2017 Adam Ducker, Managing Director / Taylor Mammen, Managing Director REAL ESTATE PERFORMANCE INDICATORS AND IMPLICATIONS, 1Q 2017 IMPACT ON

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Adam Ducker, Managing Director / Taylor Mammen, Managing Director

Park City, Utah March 31, 2017

Second Home Market Outlook and State of the Mountain Resort Markets

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State of the Mountain Resorts Breakfast | March 31, 2017 2

DRIVERS/INDICATORS (EXAMPLES) IMPACT ON PERFORMANCE/PRICING IMPLICATIONS Property Market Fundamentals Demand

  • Employment
  • Household formation
  • Consumer spending

Positive (Job, population, spending growth enhance demand) Fundamentals healthy and improving, but at moderating rates Supply

  • Occupancy
  • Construction

Neutral (Construction leads to stabilizing occupancies) Capital Market Fundamentals Equity Demand (Buyers)

  • Fundraising/“dry powder”
  • Qualified offers per

transaction Slight Positive (Plenty of dry powder, but fundraising is slowing) Currently, neutral

  • verall pressure on

asset pricing from capital markets, but 2017 will likely be a dynamic year Supply (Sellers)

  • Transaction volume

trends Debt Demand (Borrowers)

  • Fundraising/“dry powder”

Slight Negative (Currently a “lender’s market,” but deregulation could turn this around) Supply (Lenders)

  • Lending standards
  • Interest rates/spreads

REAL ESTATE PERFORMANCE INDICATORS AND IMPLICATIONS, 1Q 2017

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State of the Mountain Resorts Breakfast | March 31, 2017 3

*neighborhood & community centers **includes New York, Washington, D.C., San Francisco, Seattle, Los Angeles, and Boston Source: RCLCO

Occupancy Low Occupancy Rising Occupancy Rising Occupancy High

  • Occ. Above Average

Occupancy Low Demand Improving Demand Improving Demand Improving Occupancy Flattening Occupancy Falling

  • Occ. Flat to Down

Rents/Prices Flat/Down Rents/Prices Rising Rents/Prices Rising Rents/Prices Flattening Rents/Prices Falling Rents/Prices Flat to Down No Construction Limited Construction Construction Construction Construction No Construction

Increase Vintage Reduce Vintage New Development Reduce Opportunistic Redevelopment & Lease-Up Reduce Risk: B / Non-Core, Leverage Short-Term Leases Long-Term Leases

Multifamily Industrial Suburban Office Retail* Prime** CBD Office Single-Family

  • Previous Quarter
  • Current Quarter
  • Movement

MULTIFAMILY AND CBD OFFICE AT PEAK; ALL OTHER PROPERTY TYPES STILL RECOVERING (ESPECIALLY RESORT RESIDENTIAL)

Resort Residential

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State of the Mountain Resorts Breakfast | March 31, 2017 4

High Cost of Capital Cost of Capital Declining Low Cost of Capital (Below Avg. Spreads to Risk Free) Cost of Capital Uncertain Terms/Control Favor Investor/Lender Terms/Control More Balanced Between Sponsor/Borrower and Investor/Lender Terms/Control Favor Sponsor/Borrower Investors/Lenders Seizing Control Low (Emerging) Liquidity Growing Liquidity: Greater Availability and Diversity of Capital Sources High Liquidity No Liquidity Low Asset Pricing Asset Prices Grow and to Exceed Previous Peak High Asset Pricing (Above Avg. Spreads) Uncertain Asset Pricing

Real Estate Equity* Real Estate Debt*

* Debt and equity are less “mature” for perceived higher risk investments, such as development or assets in secondary/tertiary locations. Declining cost of capital, increasing liquidity for these riskier assets is likewise a sign of capital market “peaking.” Investors: aggressively seek opportunities Sponsors: arrange nearer- term financing Investors: build toward target allocations and diversification strategies Sponsors: arrange increasingly favorable financing Investors: rebalance portfolio, exit non- strategic investments Sponsors: arrange long-term financing relationships Investors and sponsors: Don’t panic and prepare for

  • pportunities
  • Previous Quarter
  • Current Quarter
  • Movement

CAPITAL MARKETS NEARING MATURITY FOR STABLE ASSETS; STILL RECOVERING FOR RISKY, NICHE PROPERTY TYPES

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State of the Mountain Resorts Breakfast | March 31, 2017

(UNDER APPRECIATED) FACTS ON THE GROUND: VACATION PROPERTIES “PARTICIPATING” IN HOUSING REBOUND

Residential Sales Volume (Existing and New) by Use Pattern: United States; 2004-2015 Source: NAR; RCLCO 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 PRIMARY RESIDENCE VACATION PROPERTIES INVESTMENT PROPERTIES TOTAL Sales Volume (Thousands) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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State of the Mountain Resorts Breakfast | March 31, 2017

BUT THE FUNDAMENTAL DILEMMA? IS THE RECOVERY RUNNING OUT OF GAS OR IS LACK OF SUPPLY THE LIMITER?

Historical and Estimated Residential Sales Volume (Existing and New) by Use Pattern: United States Source: NAR; RCLCO

1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total Sales Vacation & Investment

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State of the Mountain Resorts Breakfast | March 31, 2017

PRICES CATCHING UP TO PREVIOUS PEAK (ALBEIT ALMOST 10 YEARS LATER); LIMITED EVIDENCE OF PENT UP DEMAND

Median Sales Price by Use Pattern: United States Source: NAR; RCLCO 50000 100000 150000 200000 250000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 PRIMARY RESIDENCE VACATION PROPERTIES INVESTMENT PROPERTIES

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State of the Mountain Resorts Breakfast | March 31, 2017

HIGH-END VACATION OWNERSHIP – THE STORY IN A NUTSHELL, STABLE BUT CONSTRAINED?

Vacation Ownership Sales by Product Type: United States; 2001- 2015 Source: Survey of Consumer Finances 2010 $0 $500 $1,000 $1,500 $2,000 $2,500 Fractional Private Residence Club Destination Club Total

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State of the Mountain Resorts Breakfast | March 31, 2017

SECONDS HOMES VERY BROADLY DISPERSED THROUGHOUT THE COUNTY

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State of the Mountain Resorts Breakfast | March 31, 2017

RCLCO 2016 “MARKET HOTNESS” INDEX – RESORT MARKETS MOST DYNAMIC SMALL ECONOMIES IN THE U.S.

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State of the Mountain Resorts Breakfast | March 31, 2017

REPORTED INTENT TO PURCHASE TRYING AGAIN TO REBOUND, BUT NO SIGNS OF BEING FROTHY

Expressed Intent to Purchase a Second Home in the Next 12 Months Top 10% of U.S. Households by Wealth Source: American Affluence Research Center/RCLCO Annual Survey 0% 2% 4% 6% 8% 10% 12% Plans to Buy Existing Vacation Home Plans to Buy/Build New Vacation Home Total

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State of the Mountain Resorts Breakfast | March 31, 2017

PRODUCT INTEREST VARIED BY LIFESTYLE AND SPENDING POWER; WITH 15%-25% PRICE TO WEALTH PATTERN HOLDING

Vacation Home Type and Price Point Preference Among U.S. Households with $1M+ Net Worth; 2015 Source: Resonance Report 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Hotel Condominium Private Residence Club membership Timeshare Destination club membership Vacation condominium Home site to build vacation home in the future Vacation Home 0% 20% 40% 60% 80% 100% $5,000,000+ 2,000,000 to $5,000,000 $1,000,000 to $2,000,000 500,000 to $1,000,000 <$500,000

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State of the Mountain Resorts Breakfast | March 31, 2017

FULL WEALTH RECOVERY ACHIEVED IN 2014, EVEN MORE CONCENTRATED AMONGST TRULY AFFLUENT

Growing Wealth Concentration in the United States Source: Pew Research Center; Deloitte

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State of the Mountain Resorts Breakfast | March 31, 2017

U.S. WEALTH PYRAMID

Estimated Distribution of High Net Worth Households by Wealth Level: United States; 2013 Source: Forbes; RCLCO Household Net Wealth Affordable 2nd Home Price # of U.S Households % of U.S. Households Greater than $20 Million Over $5 Million 150,000 0.1% $10 Million to $20 Million $2 Million to $5 Million 250,000 0.2% $5 Million to $10 Million $1 Million to $2 Million 665,000 0.6% $2 Million to $5 Million $500K to $1 Million 2,800,000 2.4% $1 Million to $2 Million $250K to $500K 6,500,000 5.7% 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 6,500,000 2,800,000 665,000 250,000 150,000 $1M-$2M $2M-$5M $5M-$10M $10M-$20M $20M+

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State of the Mountain Resorts Breakfast | March 31, 2017

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00% Less than 20 20–39.9 40–59.9 60–79.9 80–89.9 90–100 1989 1992 1995 1998 2001 2004 2007 2010 2013

U.S. SECOND HOME MARKET SPANS INCOME LEVELS, BUT ONLY VERY HIGH END HAS STRUCTURAL EXPANSION

Percent of Families with “Other Residential Real Estate” by Income Percentile: United States; 1989- 2013 Source: IRS Survey of Consumer Finances

Net Worth $250K-$800K Net Worth $800K+

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State of the Mountain Resorts Breakfast | March 31, 2017

$0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 Less than 20 20–39.9 40–59.9 60–79.9 80–89.9 90–100 1989 1992 1995 1998 2001 2004 2007 2010 2013

WHY HASN’T THE PRICE RECOVERY AT THE VERY HIGH END MATCHED THE UPPER END?

Mean Real Value (2013$) of other Residential Real Estate by Income Percentile; 1989- 2013 Source: IRS Survey of Consumer Finances

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State of the Mountain Resorts Breakfast | March 31, 2017

THE PROBLEM: LAGGING CURRENT FAMILY WEALTH CREATION THE HOPE: PENDING GENERATIONAL WEALTH TRANSFER

Generational Wealth Creation and Transfers Source: Deloitte

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State of the Mountain Resorts Breakfast | March 31, 2017

YOUNGER BUYERS ACTUALLY MOVING OUT OF THE MARKET?

“Other Residential Real Estate” Ownership by Age Cohort; 1989- 2013 Source: IRS Survey of Consumer Finances

0% 5% 10% 15% 20% 25% 1989 1992 1995 1998 2001 2004 2007 2010 2013 Less than 35 35–44 45–54 55–64 65–74 75 or more

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State of the Mountain Resorts Breakfast | March 31, 2017

FLY IN MARKETS STILL HEALTHY -- MUCH ANTICIPATED SHIFT TO DRIVE TO LOCATIONS NEVER MATERIALIZED

Second Home Average Distance in Miles from Primary Residence Source: NAR; RCLCO 14% 11% 17% 26% 10% 23% 2006

20 Miles or Less 21 to 50 Miles 51 to 100 Miles 101 to 500 Miles 501 to 1,000 Miles 1,001 Miles or More

5% 14% 15% 28% 16% 21% 2015

20 Miles or Less 21 to 50 Miles 51 to 100 Miles 101 to 500 Miles 501 to 1,000 Miles 1,001 Miles or More

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State of the Mountain Resorts Breakfast | March 31, 2017

GOOD NEWS IS THE DREARY SKIER PARTICIPATION STORY: ROCKY MOUNTAIN STATES’ SHARE CONTINUES TO GROW

Skier and Snowboader Visits by Region Source: National Ski Association

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 5,000 10,000 15,000 20,000 25,000 30,000 Rocky Mountains Pacific West NE/SE/MW Rock Mtns Share

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State of the Mountain Resorts Breakfast | March 31, 2017

CONVENTIONAL AMENITIES LOSING POPULARITY, DAY TO DAY AND HEALTH RELATED AMENITIES GAINING POPULARITY

Change in Preference for Amenities: United States Resort Industry; 2011- 2012 Source: Fall 2012 Kelsey & Norden Resort Real Estate Report

Amenities Gaining Interest –More Mountain Resort Oriented Amenities with Waning Interest– More Beach Resort Oriented

  • 10%

0% 10% 20% 30% 40% 50% 60% 70% Fishing Fire Pits Dog Parks or Dog Friendly Units Fitness Center Hiking, Biking, or Snowshoe Paths Gathering Areas or Parks Community Gardens Nordic Skiing Hot Tubs More Demand Same Demand Less Demand 0% 10% 20% 30% 40% 50% 60% 70% Equestrian Facilities Basketball/ Sport Courts Tennis Golf Swimming Pools Water Parks More Demand Same Demand Less Demand

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State of the Mountain Resorts Breakfast | March 31, 2017

UTAH SALES VOLUME HIGHER THAN PRIOR PEAK, AND NO REAL 2016 DROP OFF

Single Family Home Transactions, Selected Western Mountain Resort Communities, 2002-2016 Source: RealQuest

100 200 300 400 500 600 700 800 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Aspen Vail Park City/Deer Valley North Lake Tahoe

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State of the Mountain Resorts Breakfast | March 31, 2017

CONDO MARKETS PARTICULARLY ACTIVE

Transactions, Selected Western Mountain Resort Communities, 2002-2016 Source: RealQuest

100 200 300 400 500 600 700 800 900 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Aspen Vail Park City/Deer Valley North Lake Tahoe

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State of the Mountain Resorts Breakfast | March 31, 2017

HOME PRICE GROWTH MODERATING, BUT STILL SIGNIFICANTLY POSITIVE IN UTAH

Home Price Change, Selected Western Mountain Resort Communities, 2002-2016 Source: RealQuest, Trulia

  • 20.00%
  • 15.00%
  • 10.00%
  • 5.00%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Vail Park City/Deer Valley North Lake Tahoe

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State of the Mountain Resorts Breakfast | March 31, 2017

TRANSACTION VOLUME BACK UP TO PEAK IN SUMMIT COUNTY

Condo and SFD Transactions, Summit County, Utah, 2002-2016 Source: RealQuest

100 200 300 400 500 600 700 800 900 1,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Condo SFD

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State of the Mountain Resorts Breakfast | March 31, 2017

PERMITS CONTINUE TO BE HISTORICALLY LOW

Residential Permit Activity, Summit County, Utah, 1990-2016 Source: U.S. Department of Housing and Urban Development

200 400 600 800 1,000 1,200 1,400 Single-Family Multifamily

ANNUAL AVERAGE SINGLE-FAMILY MULTIFAMILY TOTAL % SINGLE-FAMILY 1990-1999 508 236 744 68% 2000-2009 464 180 644 72% 2010-2016 151 77 228 66% 1990-2016 399 174 573 70%

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State of the Mountain Resorts Breakfast | March 31, 2017

PRICING LIKEWISE MOVING IN THE RIGHT DIRECTION (DESPITE LACK OF PRODUCT)

Average Sales Price, Summit County, Utah, 2012-2015 Source: Summit Sotheby’s International Realty

$989,208 $1,072,889 $1,124,302 $1,311,824 $612,368 $609,539 $690,720 $682,891 $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 2012 2013 2014 2015 SFD Condo

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State of the Mountain Resorts Breakfast | March 31, 2017 Average Sales Price per Square Foot, Summit County, Utah, 2012-2015 Source: Summit Sotheby’s International Realty

$233 $264 $285 $314 $323 $341 $380 $406 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 2012 2013 2014 2015 SFD Condo

CONDO PRODUCT IN PARTICULAR

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State of the Mountain Resorts Breakfast | March 31, 2017

  • If the fundamentals are this good, why are the capital markets still so reticent?
  • Have mountain resort communities done enough to be relevant to the next

generation of buyers (who might not have the same deep ski country traditions?)

  • Can new residential product open an unrealized market and what product might

that be?

  • If America is being (at least more of) a renter nation, what does that mean for ski

county?

  • If not by fractional ownership, how do we deliver product at a lower price point in

mountain resorts? DISCUSSION TOPICS

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RCLCO 11601 Wilshire Blvd. Suite 1650 Los Angeles, CA 90025 Phone: (310) 914-1800 Fax: (310) 914-1810 www.rclco.com