First, I hope each of you and your family are doing well in these challenging times. Above is a pic of my new office, I’m doing my part to be socially distant 😊 (do you know which mountain this is at?) The coronavirus is rapidly impacting the Colorado high Country with Governor Polis shutting down all Colorado Ski resorts 3/15. Breckenridge and Telluride have gone substantially farther. What does this mean for Colorado resorts and mountain real estate?
What happened?
The evening of March 14th Governor put out an executive order shutting down the Colorado ski industry. This move rapidly spread to the rest of the country with Vail and Alterra (the two largest ski operators) shuttering properties in California, Washington, Utah, etc… Effective March 15th there were no resorts left open throughout the state.
The resort economy
Mountain communities from Steamboat, Breckenridge, Vail, Aspen, Copper Mountain, etc… suddenly have ground to a halt. Businesses have shuttered, reservations have been canceled, and tourist have left. Resort employees, store owners, and various service workers were suddenly unemployed with few options.
Furthermore, Spring Break is one of the biggest revenue generators in the various resort communities as people throughout the country flock to Colorado for vacations. Without Spring Break, a challenging “mud season” has begun about 6 weeks early with revenue suddenly being eliminated for most workers and businesses.
Breckenridge & Telluride went one step farther
Summit County officials issued a public health order Monday afternoon, announcing sweeping business closures throughout the area to help mitigate the spread of COVID-19. The order will include all municipalities. Only banks, grocery stores, liquor stores, marijuana dispensaries, pharmacies and gas stations will remain open.
All retail businesses that see foot traffic from the general public also will be required to close effective 10 p.m. Monday. All lodging businesses — including hotels, motels, timeshares and short-term rentals — are required to be closed by noon Thursday.
I thought it was pretty entertaining that Liquor and Marijuana dispensaries will remain open, I assume there would have been riots if people were unable to get their vice 😊
Telluride has followed suit with similar orders basically shutting the town down to any outside visitors. I suspect other mountain communities will follow shortly
Impact on Rental Properties:
Anyone with a rental in a Colorado resort community woke up to a new paradigm on March 15th impacting both nightly rentals and long term rentals.
- Nightly rentals: This is the immediate impact. All reservations were canceled and many of the nightly rental companies like VRBO were mandating refunds for bookings. The property owners that rely on these bookings have a serious cash flow issue with Spring break bookings gone and future bookings delayed until at least June so 90-120 days with zero cash flow.
- Long term rentals: Long term rentals are not immune but will take a little longer to see the impact. As employment in many of the resort communities dries up due to the closing of the resorts and businesses, this will no doubt cause renters to miss their payments in 30 days or so.
How about the real estate market?
Short Term
There will be 3 major short-term impacts: defaults, a slowdown in sales, and very little new inventory. I’m assuming short term is between now and June, if the current crisis lasts much beyond June, these impacts will be substantially greater.
Defaults: You will see a number of defaults in the next 60 days in many of these markets due to cash flow issues of property owners. Anyone who rents a property will feel the sting of the shutdowns of tourism and local businesses. If this lasts beyond June the defaults will soar in many of these markets, especially for those focusing on short term rentals. How many of these defaults turn into foreclosures is the million dollar question as foreclosures in Colorado take approximately six months to complete. Many of these defaults should hopefully cure in the next six months as the crisis hopefully abates.
Sales will be nonexistent: There will be basically zero traffic in the mountain towns which means out of town visitors will not be around to buy houses and sales will not occur.
New inventory will be negligible: At the same time that sales drop, inventory will be non-existent as people will keep houses off the market to wait out the crisis. Many of the homes are held in cash so they have time on their hands if they needed to sell.
Long Term: Where do we go from here?
Fortunately, long term the mountain communities will come back even stronger as they are very desirable places to both live and recreate. Even with some short-term defaults, the market will rapidly absorb these properties if they ultimately turn into foreclosures due to the lack of inventory. Furthermore, the desirability of the mountain communities will only increase as remote working becomes more commonplace and many more employees will suddenly become location neutral. Although the short term looks rather grim in the mountain towns, rest assured when the snow finally clears each town will come back stronger.
Additional Reading/Resources
- https://www.summitdaily.com/news/summit-county-expected-to-order-widespread-business-closures/
- https://www.9news.com/article/news/local/colorado-ski-resorts-closing-amid-coronavirus-outbreak/73-7fa49e14-69b0-47f9-acb6-529d34341445
- https://www.denverpost.com/2020/03/18/san-miguel-county-blood-draw-test-coronavirus/
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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 Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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