Paul Oster

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This column could be titled Mammoth Foreclosures 3.1, but the phrase “make’em a stupid offer” really stands out in my mind and is far more applicable to the present. While this statement may have no significance to the vast majority of you, it is ingrained as part of my teenage years. I heard the phrase regularly and it was usually while I was eating dinner. This dates back to long before the mania of cell phones. Our family phone was on the wall in the kitchen, and my father was a real estate broker. Today, I recognize the era––the 70’s––were pretty crappy economic times. (Will we see the return of stagflation?) But at the time nobody really seemed to have more or less than anybody else and nobody I knew had dirt bikes or went snow skiing. On Saturday night my parents went out for dinner, and the kids got Taco Bell, and that was a treat.

At the time I really didn’t grasp what “make’em a stupid offer” meant, but what I’ve come to realize is that my father was trying to get people to make offers during difficult times. And “stupid” meant low or with some creative terms, and any offer got the ball rolling. (Speaking of creative terms, I’ve come to realize that half the agents in my office don’t know what a wrap-around mortgage is––it’s like asking them who wrote “Smoke On The Water.”) Sometimes a stupid offer is the best way to test the waters. I’m sure during those times, much like now, sellers were trying to eke out every dollar and were unrealistic about what the market would bear. And buyers had their own concerns. But like current times, at least a stupid offer is an offer and it might just find out what the seller’s real motivation and bottom line is. So now with asking prices coming down (and greatly influenced by REO offerings) we’re seeing potential buyers testing the waters. And some of the most serious testing is going on with the bank owned properties.

Not a day goes by that a call comes in with somebody wanting to make a stupid offer. A few days ago someone wanted to offer $125,000 on a REO condo listed at $299,000. “That’s as high as they will go” the agent said. Now California real estate laws certainly allow people to make stupid offers, and the same laws don’t compel the seller to respond to any offer. I think that’s why it is called “an offer.” But the bank owned properties in Mammoth are bringing out the stupid offers, some really stupid, so it is time for a little discussion on the topic.

Quite frankly, and many real estate “gurus” highly recommend it, every buyer should start off with a stupid offer, especially in these types of economic times. But there is always trepidation in doing so and rightfully so. Experience has shown that potential buyers who make ridiculously low offers are seldom for real. Even when you successfully get them into an agreement/escrow they often use a contingency to get out of it, or even worse, they arbitrarily wiggle their way out of it and waste everybody’s time (and usually piss everybody off and dangerously raise everybody’s blood pressure). And in the small brokerage community of Mammoth, the names of these “buyers” usually get around pretty quick (oh, those guys!). And in our market some of these offers come from people who have never even seen the property they are offering on. Some have never even been to Mammoth. Ironically, many of these similar types of buyers are folks who bought on the heels of the “Starwood announcement” and are now the same one’s being foreclosed on. Maybe they would be better off at the tables in Vegas.

There is an art to making stupid offers and many of the “successful” agents from the recent goldilocks period don’t want potential buyers to understand it. It’s called work. And some critical thinking might be required too. (“What? You mean I have to read the whole MLS input AND some associated documents? You must be kidding?”) Just a little investigation about the property and the seller can tell you plenty. In fact, I’m convinced that some of the big players who rode through Mammoth in the past decade actually hired real private investigators to find out all kinds of things about sellers. Knowing when the seller bought the property, how much is owed on it, or have there been any offers, etc., are the basics. This is cursory knowledge before even considering the making of a stupid offer. Or even just asking the listing agent why the seller is selling (assuming you can get the truth) is a good question. Sometimes just a keen walk-through of the property will reveal things, or talking to the neighbors. There are all kinds of tactics.

And buyers who want to make stupid offers with a chance of scoring good deals need to prepare also. Getting pre-approved for loans or having those account statements handy is essential (and required to make an offer on an REO). Doing some front-end due diligence and making offers without significant contingencies proves serious intent. Stupid offers with tons of contingencies and lackadaisical intent aren’t worth much. And “cute” provisions that come out of left field are even worse. Sellers in a position to even consider a stupid offer want to deal with someone who is likely to perform on the terms. They don’t want to deal with people who are just throwing poop at the wall. The asset managers of REOs don’t even want deal with these types of buyers––every T must be crossed and I dotted. I use the analogy; buying an REO is not a horse race, it is more like applying for a job.

This brings me to the subject of short sales. There are lots of agents chasing short sales around and plenty of seminars that agents can attend to convince them to do so. If you’re a buyer chasing a short sale, especially in Mammoth, you better do some due diligence on the seller. Does your agent understand the difference in California between a recourse and non-recourse loan? I’ve been quiet on this subject––just watching the process in this new economic environment––trying to see if it is even feasible. Making stupid offers on short sale listings in Mammoth is futile. The market is showing that getting involved in a short sale in Mammoth is not only going to be frustrating, but also likely a waste of time. Again, it’s the nature of this market; the structure of the loans used to purchase the preponderance of properties in Mammoth (non-primary residence), and the financial position of the “sellers” (no provable hardship), and the lender’s accounting, tax, and insurance strategies all in the mix. I don’t think any government bailout or bill is about to change any of that. Becoming mired in a short sale is one certain way for a buyer to be distracted from finding a real deal on a quality property. But be my guest.

And where might some stupid offers be appropriate in today’s Mammoth market? Try any property with “luxury” in the marketing material and property description. Luxury is the new synonym for overpriced, maybe even grossly overpriced. Luxury is defined in the dictionary as something that is rare or hard to achieve. And yet it has recently come to describe almost every new property in Mammoth. (Or maybe everyone is confused because Mammoth IS the real luxury even though we tend to forget it.) Many developers are still holding on to lots of luxury inventory. Something will have to give. Servicing debt like this is becoming quite unsavory although some forbearance is likely, but that can only last so long. Credit only continues to tighten. And there’s a solid inventory of (luxury) high-end homes (many built on speculation) that are likely to become ripe for stupid offers. And I know there are many lurking, watching, wannabe-scoring-the-trophy-home buyers out there.

The good news for now is that there is still buyer demand. There are even a surprising number of cash buyers. Mammoth still has great appeal to plenty of people. Meanwhile, the fall colors are turning nicely and we’ve had a glorious, crowd-free September with fabulous weather. Mark it on your calendar to spend a future September in Mammoth. And there’s nothing stupid about that.<!--EndFragment-->

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Real Estate Q&A August 2008

Q: As relatively new Mammoth locals, we’re weighing our housing options. We can qualify for Mammoth Lakes Housing properties and have been sensing that regular rentals rates are coming down a bit. But we really would like the chance to buy something. What’s your take on opportunities for locals to buy in the next few years?

A: To answer this question we need to visit some changing market conditions. Let’s look at rents first. Residential rents are the underlying driver in the decision making process to buy or not for many people. Many locals bought homes at opportune times in the 90’s and hedged nicely against increasing rents. They bought in the whole spectrum of properties from $35K condos to fourplexes they call home.

Mammoth rents escalated significantly in the past ten years due to rising demand and increased market values. Part of it was purely economic as Mammoth bounced out of the economic depths and doldrums of the 90’s (it really couldn’t have gone much lower––some properties were “almost free”). Part of what drove the demand was the large workforce building new properties. (Why do you think so many see the Clearwater project as an immediate panacea to our local economics?) As we’ve learned it’s just a short-term phenomenon, albeit a good high. Another sneaky, but real demand driver was the creation of the Value (ski) Pass. Many new season pass holders (30,000+) figured that a seasonal rental (or ownership) was an automatic part of the program.

But while demand has been curtailed (at least for now), supply has risen on many fronts. Mammoth Lakes Housing has developed and impressive number of “affordable” units for both owners and renters. The Ski Area has built new employee housing projects and bought a bunch of condos along the way. Even the college now has housing (and very nice too!). But what has also increased the current supply is a core of owners who bought in the past few years and for whatever reason––from just needing cash flow to not being ready to re-locate or retire yet––have thrown their properties into the rental pool. And there will always be very high demand for winter long-term rentals of 4 to 8 months at premium rates. All in all, rents have become somewhat more affordable in the past 18 months, but only time will tell whether they stay there.

So what about the affordability for buyers? The good news for some (those that want to buy) is prices are coming down. But each segment is different. The bad news is that financing has tightened, but there are still loans for responsible people especially if you have a down payment. There are still good loan programs for first-time homebuyers. Right now a dozen or so foreclosures are spotting lower prices in the market. But not all of these foreclosed properties are attractive to or geared for locals. But at the right price they might be. The bigger question might be what types of properties may come available in certain prices ranges.

One segment of the market and price range that remains fairly stable and price supported is single-family homes in the $700,000 to $900,000 range. I’m not saying it’s hot like three years ago, but there are ready, willing and able buyers in that segment. But many of these owners/sellers are still holding out on higher prices. If a listed price drifts downward there is usually a buyer somewhere along the line. The point is I don’t see these homes coming down into the $200,000 to $300,000 (or less) range where they were in the mid-90’s. And if they did there would likely be investors competing to buy them for rental properties. Like many mountain resort towns, quality middle-income housing in Mammoth remains a big problem. It needs to become the new focus of subsidized housing or else the town will always have difficulty attracting new teachers, nurses (even doctors), middle managers and the like.

We are seeing some home pricing down below the $500,000 mark, but these properties usually have some serious compromises––location, age, etc. If they go much lower (say by another $100,000) I suspect there will be plenty of buyers. And I’ve been watching home values in Bishop (planning for my older age) and there are some nice homes in the mid-$300,000 range down there. A couple of big winters will always make that look attractive.

Then there’s the condominium market. Back in the mid-90’s when I sat on the Town’s Housing Advisory Committee I was intrigued by what would happen to all of the aging condos as Mammoth pursued the goal of becoming a world class destination resort (and building lots of new and modern condos). I did my own study and identified the condo projects that I felt would transition to local’s housing as opposed to remaining second-home oriented. (Remember, at the time values were at an “almost free’ state.) My study came up with approx. 2,000 condos that I felt would become more permanent resident oriented. Much of it has come to fruition in the past 12 years. A quick drive through certain parts of town and it becomes obvious. This is valuable housing stock that many resort towns would die to have. And now as values backslide, there will be new opportunities. And as has happened in the past cycles, maybe some old owners will be willing to owner finance (and maybe Barack will influence that).

The problem with some of this old condominium stock is exactly that: age. Most of these projects have or are facing large assessments for much needed capital improvements. But whether anybody realizes it or not, the second homeowners who have, or are, paying most of these assessments will help locals get into older but remodeled and well maintained housing in the future. So for prospective local buyers, good timing and analysis can make for a quality purchase. Reviewing the Homeowners Association information, including financials and reserve studies, is a boilerplate contingency in condo purchases. But having an idea of where a project is in their capital improvement program and funding is essential to the successful shopping process. Ultimately, I don’t think we’ll get back to the “almost free” values in Mammoth, but there are and will be good opportunities for local residents to buy in at affordable prices.

As we are learning in this current cycle (especially with the foreclosures), is that some people are just better renters than owners. Those people should remain renters. But as I’ve witnessed so many times before, owning one’s own home gives you a completely different attitude towards the community in so many ways. An old axiom of public planning is “home ownership makes mayors of all your citizens.” I think we can always use a few more mayors in Mammoth. Mayor Wood might even agree to that. <!--EndFragment-->

Assessing The Assessor Q: We noticed on your blog site that you are a member of the Mono County (Property Tax) Assessment Appeals Board. We’ve also been watching the competition for the upcoming Assessor’s election and wondered what input you might have since you should have some interesting insight into the office and department? A: I’ve sat on the Board for the past 4 years and have served under the two previous Assessors. And yes, it has been enlightening. As I drive around the town and county and see the “John/Jane Doe for Assessor” signs what really comes to my mind is this: Does the average man on the street really have a clue what this is all about? Oh sure, maybe they have followed some of the scandalous, recent past, but do they have any understanding about what they are voting for? And why are all these people running for this position anyway? And even if somebody has read all the campaign rhetoric by the candidates, why is the “trust” and “fairness” and “integrity” such a big deal? (Hell, the Mammoth Advocates didn’t even take a position!) So pay attention. The primary reason all these wonderful, caring citizens are chasing this position is because it is a great paying job in the eastern high sierra where great paying jobs are few and far between. And you barely have to qualify for the job. The 2007 Mono County budget shows the Assessor’s office receives close to $1.5 million in wages and benefits with the Assessor’s wages at around $130,000 per year. And yes, there’s an assistant assessor, staff appraisers, staff, etc. And yes, the job is critical to the County––property tax is the core revenue generator for county services. But with the Assessor as an elected position, I even joked some months ago that I would run knowing the economic value of the job. So go ahead and write my name in, although being a bureaucrat would drive me to drink. Our current candidates are all honorable and I’ve decided it is probably not appropriate for me to endorse any candidate in particular. Instead there are a few of things I’ve learned since being on the Board that I think the public should consider when selecting. Appraisal Experience. The Assessors office is founded on the real estate appraisal process. Real estate appraisal is more of an art than a science. And even though it is suppose to be objective, it can be very subjective. Today, some folks think they can just Zillow the property and get the answer. Yeah right. (Right now local appraisers can’t even agree if we’re in a “stable” or “declining” market. I call it “conflicted”.) And appraising/assessing commercial property in Mono County is a snap––there are so many “like comparables.” Even worse you have crazy things like people building $20 million homes and hiring a battery of attorneys and private appraisers to argue a lower valuation. Or even worse you have private equity/hedge fund bullies that come and go and try to dance around things. So why would we want to elect someone to the office that has no appraisal/assessment background? But it could happen. California Property Tax Law and Procedure. Then comes the reams of property tax law in the State of California that sits about 10 inches high on my desk (well, actually under my desk in a box). One real estate attorney told me that it is too much to specialize in––you have to specialize in a particular part of it. Mono County, being a rural county without a large volume of appeals, is represented in Appeals hearings by such a specialized attorney. That’s all he does is represent rural counties in appeals. And I’m sure he does plenty homework on each case. But it is critical that the Assessor has a solid knowledge of the law and procedure. That takes years of day-to-day experience. There’s no cramming for this test. Communication With The Public. I’ve observed many property owners question their assessed values. Few actually appeal and fewer make it to a hearing. I always recommend people call the office for clarification and questions. I’ve seen things worked out. From what I have seen the Assessor’s office does an excellent job in sitting down with the (usually naïve) property owner and explaining the process and why they came up with the number. And granted, there are legitimate Appeals. But communicating with the public in a professional manner takes knowledge of the subject––so the Assessor’s office needs to have that skill level from the top to the bottom. And the office always needs to be able to defer the highest authority––the Assessor. There are other skills a quality Assessor should have in my opinion. Proven administrative and leadership skills should be obvious. Local knowledge is important too. And now, “Prop. 8” applications—the request for reduced assessments––will be on the rise and it is critical those are handled skillfully. Mono County is a diverse county with diverse properties and with even more diverse property owners. The State requirement that the voters of Mono County elect the Assessor means that it is one of the last administrative positions in Mono County left up to the voters. We only have ourselves to blame for the past. We have a chance to move one more administrative office away from the “good ‘ol boy” days of Mono County. Please vote with your brain.

Asleep At The Wheel? Q: In a very recent column you stated that the spring buyers “have exited for the most part and there won’t be any volume of buyers looking until late summer”. I was told from somebody in the industry that business was picking up. Can you explain your perspective? A: Since the year 2000 there are clearly two primary selling seasons for Mammoth real estate. There has always been a pre-winter push driven by the anticipation of skiing and positive rental income. The other busy and productive period has become the late winter/early spring when Southern California families are here for extended vacations. Those weeks are more spread out due to the schools being on “tracks”. During these weeks there is no rush, no “weekend warrior” mentality. Mom and dad (and grandma and grandpa) relax a bit and can spend some quality time looking at real estate. So with the spring break period over, the ski season winding down, and thoughts of the beach and the River on people’s minds, the Mammoth real estate market historically takes a pause. And yes, there will still be some buyers poking around and Fourth of July always brings great expectations, but as I said, I wouldn’t expect any volume of buyers until late summer. But it is an important time of year for real estate types. Our minds go from skiing and snow management to summer sports and landscape and repair. The contractors are already moving here in town and Mammoth puts on a delightful face for summer. But here’s what is important––between now and Labor Day the inventory traditionally moves up in numbers. This typical increase in inventory will once again expose the real sellers from the not-so-real sellers. For me, I’m paying attention to the possible “gems” that may come to the market––those really choice properties that are prized and few-and-far-between, or the really good buys of quality properties. And some that after 90 days or so of marketing may become good buys. Again, for market watchers it’s an important time to observe. So the inventory is going to increase?? Let’s look at some of the current numbers. But let me first state that there are dozens of properties that have been listed in the past 12 months that have expired or been withdrawn from the market. Many of these listings won’t reappear. This is characteristic of the Mammoth “don’t-have-to-sell” market. As of this writing there are only 65 homes listed for sale––a relatively low number. Some are very attractive high-end homes and have been on the market for years. And some are really the dregs and their owners are still living in a Starwood induced delusional state. I think some just like the attention of a (pretty) Realtor®. We’ll see some newcomers to the market, some rehash, and maybe even some price reductions. I do know thing, in this market segment there are lots of folks (wannabe buyers) watching. And as I drive around the neighborhoods this spring I see some major remodels starting. The condo inventory has been sitting right around the 300 mark for some time. Over 10% of the condo inventory is in the Westin Monache. Another 10% is condo hotel product in the Village, and another 10+/-% is in the Snowcreek Phase 6 (The Lodges) or in Intrawest or other developer’s new inventory. That leaves about 200 of the regular old resale condos in the today’s inventory. Again, this is in no way excessive from a historical perspective. The bulk of the truly motivated sellers are those that bought in the 2004-06 timeframe, and typically bought with 100% financing (with rapidly increasing “toxic” payments). Many of these owners will simply end up in foreclosure and those properties will end up being good buys for someone else. Oh, and there are a few motivated sellers who just couldn’t resist refinancing every penny out of their properties at the height of values. And as we head towards the second half of 2008 there are some interesting unknowns and uncertainties that may generate activity and some good buying opportunities. The first is the Presidential election. God only knows what could happen. While one candidate proposes raising the capital gains tax, a backlash of support arises for eliminating it for a window of time to stimulate the economy. Capital gains taxation is a serious underlying driver for Mammoth real estate––both in and out of the market. And yes, tinkering with either way will have ramifications. And what about mortgage rates? Who knows? Those buyers with down payments and good credit can get loans. Appraisals have been unpredictable––some higher, and some lower than expected. Some appraisals have queered transactions. Some have made sellers renegotiate. But the mortgage rates have been bouncing around almost arbitrarily. Now is an even more important time for buyers to have a top-notch mortgage professional working for them. Yes, a seasonal lull in buyer traffic is all part of the sales cycle here in Mammoth. The sales push for the Ritz is having nominal, if any, effect on the balance of the market (not like in the past where these sales efforts created whirlwinds of activity). Serious market watchers will be perusing their favorite search engines and watching their segment of the market. I can already see a big difference coming between some segments. It’s all about supply and demand. In the meantime it is time to finish off some spring skiing, get the bike tuned up and maybe even think about a trip to Mexico.

Broker’s Report April 16––In the spirit of keeping this from sounding like the Broken Record Report instead of a fresh Broker’s Report, I will digress somewhat this time around, but hopefully produce something worth your while. For those serious market watchers who want immediate information, here it is; the Mammoth market has, for the most part, returned to a stalemate between buyers and sellers. Some significant price reductions have brought transactions. But most sellers have dropped back into passive mode. A half dozen or so are slowly heading into foreclosure. And some have their fingers crossed that a short sale is possible. The typical spring break lookers and buyers who spread out over the weeks of the So Cal school breaks appeared and were bargain shopping. They have exited for the most part and there won’t be any volume of buyers looking until late summer. Many of the shoppers in the condo arena were not only looking to low-ball offers but were also looking for income histories. (It appears that some agents have returned to “income production selling” in the condo market––enough for broken records.) So let me digress. Over time I pile up what I think are tasty bits information from various sources that apply to what is happening in Mammoth and the real estate market. Some of this information flows to sales meetings and some to the trash can. But some stick. So here is some of what I’ve dug out of the stack. The April 14 edition (this is a fresh one) of FORTUNE magazine on page 30 reports “The Luxury Recession”. “Purveyors of high-end goods and services––normally insulated from economic slowdowns––say they are starting to register a sharp downturn in discretionary spending.” Bookings at the Leading Hotels of the World are down 10% in 2008, high-end steakhouses are replacing prime cuts with lower grades of meat, retail golf sales are down, yacht sales are down 50%, and private Pilates classes are making way to group classes. (I just wish I had the guts for a Pilates class.) All of this may be good or bad for Mammoth and its constituents, depending if you’ve bet on the uppity future of Mammoth or the down-home inherent qualities that have always been and always will be. (The Place to Be Is Already Here?) From the New West Network on April 1 (this was no April Fools’) titled “Credit Suisse’s Troubled Rocky Mountain Empire”. The article speaks to the failures at the Tamarack Resort in Idaho, the Promontory Club in Utah and the Yellowstone Club in Montana––all new high-end (mountain) resort developments. What all three have in common is that international banking giant Credit Suisse is their primary financier. Tamarack is in bankruptcy and they are in default of their $250 million loan and Credit Suisse is trying to foreclose. Promontory is also in bankruptcy and owes CS $275 million. The Yellowstone deal is more convoluted and a little higher in profile. But the celebrity clientele is bailing on the half finished project. The CS loan there is $300 million. The article states “It’s impossible to know whether Credit Suisse was a foolish lender that’s about to lose its shirt, or a shrewd deal-maker that’s about to pick up some valuable properties for a song.” I wonder if Credit Suisse has a quarter-billion dollar loan on Mammoth? But my “take away”––there is an obvious limit in the demand for luxury mountain resort product. This should continue unless the dollar becomes so worthless that the rest of the world considers basement pricing for the luxury experience. And ultimately the resilience of Mammoth is its ability to consistently do numbers. Around town I am hearing a recurring theme. Old time locals like Steve “Bearman” Searles and Town Council candidate Chris Tolley are among those that have barked at me “We want our town back.” I ask these people what that means. Their responses are thoughtful. They think about the way Mammoth was in the 80’s and 90’s. Times were tough economically but there was a much greater sense of community. (We were all in the lifeboat together.) And there was no mania. They express they aren’t opposed to growth and development. They just don’t like the circus, the transient egos and short-term thinking––the sell-out to corporate carpetbagging. It reminds me of the old saying “Be careful of what you ask for.” But what they’re asking for is happening. Mammoth’s own form of Darwinism is resurfacing. (Darn, gorging at Nevados is so much more fun than picking over the sale items at VONS.) But I digress. Back to real estate and some of my random observations. The Westin will epitomize this past era of excess and speculation. The currently listed inventory at the Westin Monache represents 10+% of all the Mammoth condo listings. I’m aware of many second phase defaults (and buyers walking away from their 10% monies) and now it appears they are holding back at actually re-listing the properties––the MLS as of this week reflects, “contact…for further information regarding developer product inventory.” And one local attorney has pointed out to me the developer’s Civil Code responsibility to those defaulting buyers. This creates just one more quandary that will only be exacerbated by the coming months of the rental income black hole. Buyer beware, phantom inventory is greater than ostensible inventory. Another growing complaint is the “trust” many Mammoth buyers (2005-07) put in the Starwood acquisition. That trust has dissipated to nothingness. I guess we’re lucky the chairlifts keep running. A broken down Branding process, no new lodge at Eagle, no Village parking lot, no ski back trail, no “1”, (although the new Chair 9 is very cool albeit a very questionable investment in relation to other needs), no nothing really. Oh I forgot, fancy LA food on the Mountain. The airport may be ready just in time for fuel prices to crush the airlines. And all hope is now left to some newcomer Cowboys to put on the Ritz, pump the Town coffers and keep the trickle of momentum going. The only things we can really trust in are the God given qualities of Mammoth. It really is starting to feel like the 80’s and 90’s again. Oh there’s that broken record. Maybe we should just brand it Broken Record Mountain. Meanwhile, it is time to renew your MVP or buy an April discount Gold pass. Get a SUV hybrid with DVDs in the back for the kids. If you ever planned on building or remodeling in Mammoth, now is a great time. The contractors are waiting. Clearly there are many waiting-in-the-wings buyers for Mammoth real estate. But there is no pressure other than life’s clock. I don’t know how to respond to so many who want to own a piece of Mammoth but to just sit back and see where all of this is going. My answer is I’ll just do my best to keep you apprised of the market. I’m watching and analyzing every day. But don’t mind if I take some time and go skiing, go hike or ride the bike or go fishing on the Pacific. All of this will sort itself out. Meanwhile, keep an eye on the deal for the Main Lodge property. That land belongs to the public––that’s you and me––we’re the sellers. And the Feds haven’t proved to be good fiduciaries. And you know what that gets you. Skip, skip, skip…