B.C. ski resorts stare down slippery slope of high supply, stalled demand from condo investors
GLEN KORSTROM/FRANK O’BRIEN
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British Columbia ski resorts may have reached the tipping point on the number of resorts needed – and any new developers will face financing challenges as investment condo sales whither. Such are the findings of a Western Investor look at a potential slippery slope facing mountain resorts.
The capacity debate is intensifying in the lead-up to a provincial government ruling on a proposed $450 million resort on Jumbo Mountain in the Kootenays.
Forests, Lands and Natural Resource Operations Minister Steve Thomson is expected to decide this winter whether to give Jumbo final approval.
But Grouse Mountain owner Stuart McLaughlin believes B.C. has more than enough ski resorts and that new ones will only erode existing operators’ bottom lines.
“We need current resorts to flourish,” McLaughlin said. “There’s lots of capacity in the system right now. Once all resorts are successful, that will create the need for more resorts and improve the likelihood of success for anyone who comes later.”
McLaughlin’s resort generated record revenue, in the $50 million range, in 2011. Success has largely come from adding attractions. For example, McLaughlin launched zip-lines in 2008 and spent several million dollars to build Grouse Mountain’s Eye of the Wind turbine and lookout, which opened immediately prior to the 2010 Winter Olympic Games.
Grant Costello, senior vice-president with proposed Jumbo Mountain developer Glacier Resorts Ltd., said his opponents are often ski resort operators who don’t want competition from what would be B.C.’s only year-round ski resort.
Costello has thus far cleared all obstacles in the way of his development, including a nine-and-a-half-year environmental review. He said he’s ready to start pumping tens of millions of dollars into creating the resort.
Sun Peaks mayor and longtime ski industry entrepreneur Al Raine likes Costello’s enthusiasm. “People who I’ve heard talking the loudest about how capacity at B.C.’s ski resorts should be held back are usually the existing operators,” he said.
“If someone is there with major investment money on a major resort and the project would help elevate B.C.’s international image in the ski business … let them go do it. We should encourage them.”
That sentiment formed the core of B.C.’s commercial alpine ski policy (CASP), which Raine helped write, and which the Social Credit government implemented in the 1980s.
That policy is also a key component of Jumbo’s business plan.
Ski resort operators say that CASP helped B.C. develop its ski sector into what is now more than a dozen resorts.
CASP has since expanded to become the all-season resort policy (ASRP), which includes non-ski operations. It allows developers who are willing to invest in infrastructure such as ski lifts to buy Crown land at the base of the mountain for the market price the land had before the infrastructure upgrade was installed.
Before CASP was enacted, ski resort developers were at the mercy of land speculators who bought land near potential developments.
The policy resulted in proposed developments moving away from areas where there was privately held land to sites where the base of the resort would be on Crown land.
“It really helped Kicking Horse Resort,” Raine added, referring to the Golden-area resort that was recently sold for $28 million. “That wouldn’t be there without this policy.”
But the policy doesn’t mean that all proposed resorts are given the green light.
The B.C. government approved Garibaldi Alpen Resorts Ltd.’s plans to develop a ski resort at Brohm Ridge in Mount Garibaldi Provincial Park in 2003. But BC Supreme Court judge Marvyn Koenigsberg overturned that approval later in the year, ruling that the government did not fully consult with the Squamish First Nation.
Raine was also the driving force behind developing a major mountain resort at Melvin Creek in the Cayoose Range between Pemberton and Lillooet. “I backed away from that. Land-use issues were unresolvable,” the 70-year-old said.
Hotel condos
But potential ski resort developers are also facing a financing challenge after what appeared to be a brilliant concept a few years ago – selling hotel units directly to investors – has turned to be a spectacular bust.
Neither fractional ownerships or hotel condominiums, both of which rely on individual buyers purchasing hotel rooms and then putting them into a rental pool, have proved profitable for investors.
“Every hotel condo investment [in B.C.] has lost money for the investor,” said real estate consultant Ozzie Jurock. “Every one.”
The crash has led to a giddy free fall in prices.
At Sun Peaks Ski Resort near Kamloops, some hotel condos that once sold for around $199,000 are now being offered at from $19,000 to $25,000 – with some selling for even less. The typical arrangement allows owners 56 days of use per year with the units potentially rented the rest of the time. The catch is that monthly fees for owners can easily top $360 per month and the owner receives less than half of any rental income, with the rest going to management. In most cases, rental incomes don’t cover the management fees.
At Whistler, hotel condos – known as Phase 2 units – are selling this year for less than they were in 1999, according to veteran Whistler realtor Mike Wintemute. Recent listings show one-bedroom Phase 2 suites at Whistler are priced as low as $61,000.
Fractionals
Fractional units, where resort hotel suites are usually sold in one-eighth to one-quarter shares, have also floundered. The most recent and highest-profile collapse is the luxury Parkside Resort and Spa in Victoria where one-eighth fractional shares were being sold from $115,000 to $121,000 last January. By November 2011, Parkside was in receivership with more than $61 million in unsold inventory, according to court filings by Victoria-based developer Aviawest Resort Group.
As Jurock explains, the problem with fractionals during a downturn is that eight owners will be all trying to sell the same unit at the same time.
“No one will build hotel condos or fractionals anymore,” predicted Zack Bhaista, vice-president of Mayfair Hotels and Resorts of Vancouver, which has just broken ground on the Crystal Blu Hotel in downtown Vancouver. “Anybody who bought a [shared ownership] hotel unit in the last 10 years has lost a tremendous amount of money,” he said.
from Western Investor March 2012