Real Estate Report 1/18/2012.

2011 was a roller coaster of events for the Tahoe region as external events, economic, political and weather related, impacted our efforts on all sides of the spectrum. The year began with great promise as both Squaw Valley and Northstar began operations under new ownership full of promise for maximizing the potential inherent to both resorts. This element has delivered on all promises to date including notably the new Promised Land Express Lift and Zephyr Lodge at Northstar with much more in store for 2012 and beyond.  These elite caliber operators have shown both desire and capability to elevate the service model and guest experience at their respective resorts to compete on a global stage. Perhaps more importantly, they clearly have the horsepower to showcase both the individual resorts and the entire region to a broad and qualified audience.

Real estate sales regionally were similarly active as the resorts for much of 2011 closing with 1252 residential sales.  While this number fell short of 2010 by exactly 100 sales (7%) it was the second most active year since 2005 and was undoubtedly impacted non-real estate factors; most notably impassable road conditions at critical times last winter. Similarly, average value showed stability by generally hanging at levels equal to 2010 while median price dropped a modest 7% from heavier transaction volume at the bottom end of the market.

Q1, 2011 was dominated by extreme weather, first sunshine so brilliant that our consumers found it easier to enjoy themselves at the beach than the mountains, then snow so unrelenting that our consumers were shut out of the region by impassable roads over several key weekends. While this impacted the overall number of transactions as compared to 2010, values showed strength as average price grew by 2% in the 1st quarter.  Notable during this period was the pre-sale launch of Home Run Townhomes, a unique enclave of luxury townhomes found Mountainside at Northstar.  With a strong early buzz, two pre-sales were achieved and ground subsequently broken on this marquee project with completion anticipated on the first eight residences this spring.  Also during this time six lakefronts closed escrow between $2,275,000 and $6,300,000.  A premiere home in Old Greenwood traded for $2,275,000 and Northstar saw a handful of high-end closings including the first four of eight total sales in Northstar Lodge, a Village Walk townhome for $1,700,000 and a single family home in Big Springs for $1,810,000. 

Transaction volume continued to grow into the 2nd quarter as is typical of the season, including a strong number of premium sales within the resort markets. Squaw Valley and Martis Camp each recorded sales above $3 million, Northstar Lodge closed another three transactions and Lahontan saw a flurry of activity with five sales recording between $1,100,000 - $1,810,000.  Despite these strong sales, the market would become dominated at the lower end as opportunities for full time owners continued to be driven by bank- and short-sales. Such transactions would ultimately equate to 31% of all sales throughout the region, a figure nearly identical to the year prior.

Q3 began in grand fashion with the opening of the Martis Camp Clubhouse. This crowning jewel of the region’s great success story created tremendous excitement as it delivered on its promise for quality and grandeur. Coupled with the Family Barn and (now under construction) Alpine Lodge, Martis Camp has created a remarkable package of amenities that have solidified its positioning within the region. The market has clearly responded as sales surged beyond 80 total homesites and 5 home sales including one cresting $1100 per square foot. There are now well over 130 homes either complete or under construction at a time when, other than the new communities Mountainside at Northstar, building is scarce.

Notably Martis Camp; in the first 7 days of the New Year, Martis Camp placed 7 homesites under contract, including 1 home/lot combination.  Not bad for the 1st seven days of the year!!

Overall transaction volume and average price swooned a bit during June and July only to surge in August behind the strength of 11 lakefront sales ranging from $2,200,000 - $6,500,000 as well as a marquee Big Springs sale for $3,200,000 and three additional sales in Lahontan from $1,350,000 - $1,800,000. It was during this period that events within our government abroad began to erode the confidence of the market, the ripple effect of which was most certainly felt in our market. After reaching a high of $625,000 in August, average price regressed in each of the subsequent four months of 2011.

Q4 is generally a strong period for transaction volume as consumers purchase in anticipation of the coming winter (evidenced by chart below). Instability in national and global events over this period had a stymieing effect as October closings failed to keep up with historical averages and strong Q3 numbers. Prominent sales during this period included the 2011 high water mark for Lahontan at $2,500,000 coupled with another at $1,850,000 and a lower end home for $1,350,000, a Martis Camp home for $3,850,000, a single-family residence with nearly slopeside access at Northstar for $2,700,000, a Squaw Valley estate for $2,800,000 and two lakefronts above $3,000,000.   

Two distinct market trends emerged in 2011 within our region. The first and most obvious mirrors the reports heard frequently on CNBC and other national channels of continued distress in the housing market. This has generally, though not exclusively, been limited to primary home neighborhoods at entry level pricing. While this challenge will continue into 2012, the velocity of sales within this segment remains quite strong; a good indicator of demand from locals which, in turn, can be interpreted as positive news from the service and trade industries. The second market trend is of soaring demand for elite-caliber resort real estate.  This segment has been robust in the face of other economic challenges validating the investments of Vail Resorts and KSL mentioned above. Clearly there remain plenty of families from the Bay Area for whom Tahoe represents an opportunity to gather together around healthy, outdoor activities in a beautiful setting. The continued success of Martis Camp and Northstar as well as strong transaction volume in Tahoe Lakefront Properties, Lahontan and other higher end communities lend credibility to this theory.

Certain neighborhoods saw both faces of the market internally. For example, Old Greenwood has maintained very modest supply of homes for sale throughout the entire downturn. With just three homes currently listed, two transactions in 2011 demonstrated reasonably good absorption. Of these transactions, one was a premium sale at $2,275,000 for a beautiful trophy home on a premium homesite. The other transaction was a short sale of a more modest home at $865,000. While the difference between the two homes is apparent, I would not consider it to be more than 2.5x which tells me of an overcorrection at the bottom end of the market and a great buy.

Gray’s Crossing continues to be a neighborhood full of potential energy.  With the recent completion of a final roundabout, all community infrastructure is complete.  7 home sales tell a good story including the first several closings within the Village at Gray’s Crossing and Sierra Cove however the real story is 33 homesite transactions.  Combined with 29 sales in 2010, 52 lots have transacted in two years nearly all of which were 75% or more below original launch prices. With just a little upward pressure on the value of completed homes, I foresee a surge of new construction positioning Gray’s as a market leader in a recovering market.

Tahoe Donner, frequently referred to as the regional bell weather for its representation of the market at large, represented these trends as well. With 250 residential transactions in 2011, a drop of 6% from the prior year, median value was steady with just a 1% decrease.

Looking ahead, 2012 will undoubtedly be a fascinating year.  Already apparent is a sluggish first quarter given the dire lack of snow.  However, rather than go away entirely, deals that would have otherwise occurred in Q1 will likely be deferred to Q2 with the arrival (this week!) of significant snowfall and pent up demand for skiing. With the stature of Northstar clearly on the rise, I look for modest improvement of values across the board from premiere homes and Village properties to “Vintage” residences throughout the resort.  The completion of the first eight residences within the Home Run Townhomes and launch of The Glades will introduce a significant new component to Northstar’s Mountainside Community rivaling premiere destination resorts including Beaver Creek and Deer Valley.  While we will not yet be able to omit words like short sale and REO from our vocabulary, all elements of the market have shown significant enough value corrections to drive sales when priced correctly.

Regardless of politics, macro-economics, or snow accumulation Tahoe remains among the most beautiful places in the world and we are fortunate for the opportunity to enjoy it on a daily basis. While the slow start to ski season has been a disappointment, the opportunity to continue hiking, biking, golfing, paddle boarding, ice skating and other great activities well into January has been a great reminder that there is always something enjoyable and healthy to enhance our enjoyment of the outdoors – and this will always be in demand for families who place value in just such things.

Best wishes for a healthy and enjoyable 2012.

Tim Lampe and Steve Kegel.