TROUBLE IN GLITTER GULCH

Meltdown Hits Snow Country

By David Frey, 10-02-08

While Wall Street was trying to regain its staggering losses and Congress was reaching for a way to prop up the economy’s tumbling dominoes, it was party time at Vail.

At the foot of Beaver Creek Mountain, 1,000 people came last Friday to nibble caviar and sample from the ice-carved vodka bar at its newest luxury lodge: a half-a-billion-dollar world of ski valets and spa treatments, all in a LEED-certified, eco-friendly setting.

The world’s woes can seem far away in these playgrounds of the Masters of the Universe. But the economic meltdown is having its effects here, too. Foreclosures are rising. The once-meteoric real estate industry is sputtering.

“A lot of that was being driven by people’s 401Ks,” says Louis Meyer, CEO of the engineering and surveying firm Schmueser Gordon Meyer, which handles many of the region’s largest projects. He likens the outlook to the days after Black Sunday, when western Colorado’s economy crumbled after Exxon shuttered its oil shale plant in 1982.

In some respects, the region may weather the turmoil better than others. It’s buffered on one end by an uber-wealthy clientele and on the other by a booming gas industry that has provided jobs and a demand for housing that has buoyed home prices and helped stave off foreclosures.

“We’re probably the latest to go into the slowdown and we’ll probably be the earliest to come out,” says Jerry Jones, a real estate broker and ski industry consultant.

In other respects, though, the region’s reliance on real estate and construction make it vulnerable. “We are largely a real estate economy,” says Wally Obermeyer, president of Aspen’s Obermeyer Asset Management Co. “You count the number of Realtors in town, and their income is down significantly.”

In workaday Garfield County, downhill from Aspen and Vail, building permits by June were down 30 percent. Two large development projects have stalled, blaming lack of financing. Others may be on the horizon.

The county’s foreclosure rate is nearing its highest peak since the oil shale bust, snagging struggling families and industry professionals. “We’re going to see foreclosures at a record this year,” says mortgage broker Drew Sakson, who watched clients face foreclosures, then found himself staring down the same threat.

The county has posted 78 foreclosures so far this year, approaching 2007’s year-end total. It’s on pace to hit 107 by year’s end. That would still be less than 2003 and 2005, but it’s among the highest rates since 1987, when, in the shadow of Black Sunday, foreclosures stood at 165. Two years earlier, they had peaked at 244.

“My feeling is, there’s going to be a lot of blood,” Sakson says. “I mean a lot.”

Sakson found himself overextended. He missed two mortgage payments on a rental property. “The snowball started rolling on me, too,” he says. He managed to come up with the money, but others haven’t been so lucky, and their numbers are rising.

“They bought too much house from day one,” says Yanina Toranza-Viera, Valley Housing Partners program director for Garfield Mountain Regional Housing Corp., which counsels prospective homeowners and helps them find affordable housing. Most can’t blame adjustable-rate mortgages, she says. They defaulted even before the rates changed.

The region’s rocketing real estate market once seemed immune to bursting bubbles, but now, homes aren’t selling and prices are dropping in both tony resort towns and working-class burgs. The listing of available homes in the area “looks like the New York City phone book,” Sakson says.

Just a year ago, homes were flying off the market, whether they were swanky dream homes in Vail or worker bungalows in towns like Rifle. “In Rifle a year ago, it was extremely difficult to buy a house,” says Toranza-Viera. “It was a seller’s market. There was little stock, a lot of demand. Now it’s changed completely.” In Aspen’s Pitkin County, real estate transactions for the year are down 33 percent. Sales are down 44 percent. On the lower end, many buyers simply can’t afford the inflated prices or can’t qualify for a loan. On the upper end, wealthy buyers may be holding out for bargains.

“Most of the buyers in that price range are pretty astute,” Obermeyer says. “They’d just as soon wait until the deleveraging has lowered prices.”

The super high-end may be a different story altogether. “It sells to a unique customer,” said Michael Berry, CEO of the National Ski Areas Association. “Oftentimes they’re far away. The headwinds we see in this country may not be the same as an oligarch from Russia.”

As for the ski season, industry officials say they’re cautiously optimistic. Forget a plummeting economy. Skiers, it seems, only care about falling snow.

“One of the last things that people sacrifice is their ski vacation,” says David Perry, vice president of the Aspen Skiing Co. “It’s such a part of people’s souls, and it’s so important to people. An outside analyst may view it as discretionary. Skiers don’t view it as discretionary.”

The industry is facing some setbacks. Vail is warning investors to expect a dip in profits next year, but that’s due mostly to the sagging real estate market. Montana’s Moonlight Basin has halted construction due to the bankruptcy of Lehman Brothers, a primary backer. Idaho’s Tamarack Resort earlier filed for bankruptcy protection.

But when it comes to skier numbers, Berry says, good snow trumps bad economies. In the post-9/11 downturn, the stock market tumbled, but ski areas set a record.

“I think people adjust,” Berry says. “I don’t care whether you’re in the middle-income or upper-income bracket. They give up a couple lattes to make it work.”

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