Vail resorts, the owner of Breckenridge, Vail, Keystone, and Crested Butte in Colorado, has fallen 39% percent from its peak and recently fell 13% in one day. At the same time lift ticket revenue was up 12% and visitation up 17%. Why is revenue declining when this ski season started off so well? What does this mean for real estate in Vail owned mountains? Is this recent revenue miss a blip or a longer term trend?
What drove the revenue decline?
The CEO of Vail resorts, Rob Katz, said “despite the good conditions, our destination guest visitation was much lower than anticipated in the pre-holiday period.” That caused Vail to predict its bottom line will come in below the lower end of its previous guidance.
How is this possible with I70 traffic getting worse each season?
I70 traffic is terrible on the weekends! As Denver has grown, so has the pressure to get into the mountains in the winter. This has led to the traffic woes on i70 every weekend and will continue to get worse as long as Denver keeps growing (which it appears to be doing). Shouldn’t this mean that as more visitors are coming up to the resorts this should generate more revenue.
Not all visitors are equal
Most of the traffic on I 70 is day trippers. How do I know? I get alerts from the Colorado Department of Transportation about building traffic heading west from about 7-10 am, on the same day I get an alert about building traffic heading east from about 2-7 pm. This shows that the majority of people are coming up for the day and heading back that day.
The “daytrippers” are considerably less valuable to the resorts bottom line than destination visitors since they are not staying in lodging , eating out three meals a day, renting equipment, staying for a week, etc… So even though visitation is up, revenue is down as a result of the change in type of visitors.
Is this a blip or a trend?
The demographics of Snowsports is changing. According to the National Ski Area Association, “Millennial and Gen X participants ski and ride less than prior generations.” At the same time older generations are “aging out” leading to declining visits at ski areas nationwide. Last year skier visits in Colorado dropped 2%, that was on top of a 2.5% drop for the 16/17 season (Denver Business Journal). Those results could point to longer-term weakness in the snow sports industry.
The current weak results could be the beginning of change in the ski industry. Along with changing consumer preferences we are also entering a weaker economic cycle. During the last recession, visitation fell considerably for destination skiers, the most profitable skiers, and will likely do so again in the next several years. I would expect weak results from Vail resorts for the next several years.
If Vail’s stock declined almost 40%, what does this mean for real estate?
With less destination visitors and a decline in Vail resorts revenue, rental rates and booking are not as strong. Let’s say you owned a condo in Breckenridge two things are likely happening 1) you are not booked as solidly as before 2) rates on your bookings are lower than in prior years.
With revenue off, I would guess that values would start to soften. For example if you were going to pay 500k for a condo at Copper mountain and revenue declines 10%, should the price of the condo also decline somewhat?
Unfortunately predicting a decline in prices in a ski town are a bit more difficult than strictly looking at revenue as there are two other factors: 1) Lack of supply 2) incremental revenue in summer/fall seasons.
Although destination visitation has declined, at the same time supply has likely declined a little. There is very little new construction in top destination resorts in Colorado. For example in Vail, there is limited if any new supply coming online due to lack of available land. At the same time properties are being bought and some of them are taken out of the available rental pool. Many top ski destinations are renowned for their quality of life. Many location neutral workers are moving into these areas and living there full time. This is reducing the supply of available rentals.
Along with a reduction in supply, mountain communities continue to hit records on summer/fall visitation. This allows properties that might have gone unrented to now be rented for 4 more months of the year. Although summer rates are considerably less than winter rates it is still incremental revenue.
What does this all mean for real estate?
With three separate factors occurring all at once: 1) destination visitation down 2) supply constant or slightly down 3) increase in visitation in non-winter seasons the impact on real estate might be a wash in many markets. With three separate variables, I don’t see one of the three pushing real estate one way or another. I suspect prices in many resort areas to be about flat in 2019. The real mystery is what happens beyond 2019 if the economy enters a recession.
Even with Vail resorts reporting revenue well below projections and its stock taking a beating most mountain real estate will continue to remain a good long term investment due to lack of supply and increased demand in non-winter periods. If you have property in a Vail resort mountain, I wouldn’t lose sleep over Vail’s revenue miss as your property value should do just fine.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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