Vail Valley Voices: World affairs affect Vail
Vail, CO, Colorado
Editor’s note: The following is an excerpt from the Vail Homeowners Association monthly report for June. We plan to publish weekly excerpts from the association, which keeps a close eye on economic and political trends in and outside of the town. The newsletter electronic version with links to supporting documents is available at http://www.vailhomeowners.com
The contagion from governments with long-term debt, which includes the United States, is unsettling the global economic landscape. China, after warnings of a potential crash, is moving to cool its real estate bubble, which could further dampen international economic growth.
Positive indicators of growth in many sectors of the U.S. economy do not extend to the construction industry, as the supply of available properties far outstrips demand. Lack of consumer demand is causing low enthusiasm for new construction loans. Regulatory standards for banks and mortgage lenders remain a political point of contention.
Too soon to tell if property values are on the rebound: It may be too soon to tell if the yearlong trend will continue for deep discounting of as much as 40 percent for luxury residential properties. There are indications that some newly constructed high-quality residential properties in Vail Village are currently being closed at their pre-recession values of between $2,500 and $2,700 per square foot.
There are developers who are observing that for most pre-recession buyers, it is more cost effective for them to close than to walk away from their hefty down payments.
If this pragmatism holds, then there will be less incentive for other developers to continue deep discounting. The next few months will confirm or dispel the durability of this trend.
Holding the line on inflationary growth policies: If the trend does hold, the public policy challenge for town of Vail officials will be to hold to their established growth strategy. Will the Vail Town Council stay the course of completing the redevelopment of Lionshead before opening other neighborhoods to redevelopment? Or will they again offer greater density as an incentive to developers?
Floor for recovery
It is an important sign of progress that Vail Resorts has experienced positive growth for the past two winter seasons from their portfolio of resort properties. Some say a solid floor is now in place on which a recovery can be built.
Tourism profits do not bode well for non-VR businesses: Many non-Vail Resorts businesses in Vail and Eagle County say they are not experiencing a collateral benefit.
Some Vail merchants estimate a 20 percent overall decline in sales from the 2008 market high.
Likewise, there are quality hoteliers for the same period reporting a 25 percent to 30 percent decline in revenues with their average daily rate being markedly lower and overall occupancy staying even.
Year over year, lodging MTRiP projections for the summer are a 14 percent increase in occupancy and 0 percent in room rates. Travelers are booking earlier, but still expecting lower room rates.
Some lodging operators are worried that unless something is done soon to cause room rates to begin rising, it could be years before profitability will return to pre-recession levels.
The year-over-year town of Vail sales tax report shows positive sales tax growth in March of 6.7 percent, year-to-date up 1.2 percent, and the ski season (November through March) down 0.6 percent.
The town is reporting that most revenue sources are exceeding the same period a year ago and are exceeding budget projects, but overall revenues are down 18.7 percent from their 2008 high. The list of the town’s backlog of capital projects has been lengthened to cover other short-term costs.
More skiers spending less money: Two years into the recession the conclusion is that business conditions for non-VR enterprises remain unchanged: More skiers spending less money.
The trend does not bode well for these businesses nor the town of Vail should it continue for the next few years.
Analysts experienced with the conditions in Vail and throughout Eagle County see a slow upturn measured at a rate of 1 percent to 2 percent annually. Not enough to keep up with inflation, one source quipped.