From the Mountain Town News (Allen Best):
Creating mountain resort economies that can survive more winter rain
Greg Finch has left the ski business in California, happy to let somebody else figure out how to operate a mountain resort where mid-winter rain is likely to gradually replace snow.
He bought Bear Valley, a ski area in 2007 and closed on the sale in December. There was recession in the middle overlapping four years of drought, the longest on historical record in California.
“We got beat up pretty badly,” said Finch, the founder and president of Dundee Resort Development, last week from his office in the Vail Valley.
“We had three and a half years of no snow or at least little snow, and the other thing that I don’t think people think about enough is that you have the fires all summer. We had two summers where smoke alarms were going off in people’s homes because of the fires at Yosemite (National Park), which is 40 or 50 miles to the south. The change is very sweeping, and I am more of a real estate guy than a ski guy.”
But while next November may bring return of the prodigious snow dumps for which the Sierra Nevada is famous and economic recovery may continue, it’s unlikely to be particularly cold.
The trend of warming temperatures has been ongoing since 1980 and isn’t going away, says Mike Anderson, state climatologist at the California Department of Water Resources.
“We definitely have an expectation for warmer temperatures,” Anderson told the Sacramento Bee. “So years like this winter will definitely become more the norm instead of being the outlier.”
These graphs, provided by Anderson to Mountain Town News, show a clear progression. The first chart…shows average minimum temperatures. There’s a clear upward trend. The chart on this page shows both average annual temperatures in the area of California that includes the Tahoe ski areas along with precipitation. All but one year in the 21st century have been higher than the average since 1895.
More worrisome yet, if you’re in the business based on sliding down snow, are the climate-change models that see a continued more-or-less steady rise in temperatures during the 21st century.
Both the Sacramento Bee and Reno Gazette probed this angle in recent weeks. The Bee, in particular, found plenty of people to wax about the profusion of non-skiing infrastructure: The zip lines at Heavenly, for example, and the 33,000-square-foot Camp Woodward action-sports indoor recreation facility that opened several years ago Boreal Mountain Resort.
Actually, this attempt to create a more year-round economy began long ago. In the 1980s, snow hills scrapped the name “ski area” in favor of “resort.” In Colorado, alpine slides were installed at Winter Park and Breckenridge. Later, mountain bikes were embraced.
Still, it’s an uphill challenge in most ski towns, as measured by the simple metric of sales tax.
In Colorado, sales tax revenues for the six non-skiing months surpass those of winter in Telluride and Crested Butte.
But Vail, while now extremely busy in summer, has sales tax collections that heavily tilt toward the six months of winter, despite a profusion of summer activities that includes a brimming schedule of music concerts for every taste, delightful weather, and a half-dozen nearby golf courses.
The same story can be told in room rates. Many mountain town hotels fill up in summer—but at rates considerably below that of winter.
Ralf Garrison, of DestiMetrics, says that lodging rates are barely over 50 percent of corresponding winter rates.
“While summer occupancies are growing and in some communities, approach that of winter months the corresponding rates and revenues lag considerably,” he says. Summer remains much shorter than winter and is limited more by school break schedules, he explains, and activities are more affordable – but produce less incomes to ski area operators.
The authority given by Congress several years ago to allow expanded summer operations on federal lands used by ski area operators will help, but will not provide a summer-time equivalent to snow sliding. Vail Resorts has been at the forefront of this push and has already begin its $25 million investment in zip lines, ropes courses and other activities at Vail, Breckenridge, and Heavenly. Lesser investments are planned at other ski areas.
What will Vail get out of this? Speaking with Mountain Town News two years ago, Vail Resorts’ Blaise Carrig said the company does not expect summer to ever rival winter.
“Winter revenues are dramatically greater for our company, and they always will be,” said Carrig, the president of the company’s mountain division. “What we are hoping for is that we can grow our summer business to significantly reduce or eliminate the loss quarters (of summer and fall).”
But if you’re looking to invest $50 million in the resort product, as Denver-based KSL Capital Partners is at its California properties, Squaw Valley and Alpine Meadows, what are you thinking as you assess the warming temperatures.
“This is a very serious and as strategically significant a topic as you can get,” Andy Wirth, the chief executive for the two resorts, told the New York Times last November.
Through a spokesman, he declined an interview for this story; Vail Resorts did not respond to an interview request.
Sierra Nevada vs. Rocky Mountains
Next November, it may start splashing big buckets of snow on the Sierra Nevada—and, to the point of this story, it may get cold instead of just sort-of.
In Colorado at 10,780 feet, there’s been no problem with mid-winter rain in winter—so far. That’s the base elevation for Arapahoe Basin, the ski area that Finch’s company bought in 1997. Dundee set about to modernize “The Legend,” as A-Basin is called. It’s one of Colorado’s oldest ski areas, launched in 1947, just after Aspen.
Dundee installed snowmaking in 2002-2003, expanded into Montezuma Bowl in 2007-2008, and added quad lifts and otherwise gussied up the product. Riding the coattails of the Vail Resorts value passes, skier days have multiplied from an average 230,000 annually before snowmaking to 400,000 annually now.
With that budding success, Dundee in 2007 joined other Colorado-based ski companies investing in resorts in the Sierra Nevada. Bear Valley is 150 miles east of San Jose and a Bay Area population of about 8 million that has attractive demographics in terms of education and affluence.
Bear Valley’s ski mountain itself has good stats: a low elevation of 6,595 feet and a top elevation of 8,495 feet and 1,900 skiable acres.
Skier days during Dundee’s ownership bounced wildly between 140,000 and 65,000.
How do you make it as a ski area like that amid rising temperatures? Finch was glad to get out, but he sees a variety of responses. It places a higher demand on state-of-the-art snowmaking, with automated operations when temperatures reach the required threshold, if only temporarily, and technology that allows snowmaking at 28 or 29 degrees, instead of the older 24 threshold, he says.
Too, warmer temperatures require a rethinking about the total year-round package. For real estate, he sees more dispersed housing instead of condominiums facing the slopes.
“At Bear Valley, we basically rewrote the master plan to include more much low-density stuff, that people would like more in the summer.”
Finch sees a ski area during summer shifting, to mesh itself with other attractions. Bear Valley, for example has 15 or 20 vineyards nearby. And it is in the mountains, offering a cooler respite to the temperatures of the Bay Area. The challenge is to provide the mix of activities.
“You probably don’t have control over all of them, but you have to be at the center of it,” he says.
The banking perspective
Bankers have as much invested in the outcome of this story as anybody. The largest lender to mountain ski operations right now is Wells Fargo, and overseeing those loans from an office in Sacramento is Gardiner de Back. Intrawest has been a customer, as has Powdr Corp. and a great many others since de Back joined Wells Fargo 35 years ago.
“I have been in this space longer than anybody else in this country,” de Back, a senior vice president, said in a recent telephone interview.
With a family history in farming around Sacramento, de Back began making agriculture loans, and that’s still a large part of his work.
de Back was also a skier, beginning at age 2, and has taught skiing at two resorts in the Sierra Nevada. Wells Fargo began its loan portfolio in California but, similar to some ski companies, expanded geographically in the 1990s.
We thought it was good to have geographic diversity and our underwriting took that into account” says de Back. “We had difficult snow years in California and elsewhere back then—but nothing like in California now.”
This year, he says, he is aware of two ski areas in the Sierra that have had above-average performance. “But they had base elevations above approximately 8,000 feet, and they also had the capacity to make snow and cover a larger percentage of your terrain than most Western resorts.”
In other words, even in California, not all ski areas have the same story.
That spills over into Wells Fargo’s lending criteria.
When looking at where the bank will loan money, says de Back, he has added focus on the ski area’s base elevation, its snow history, how much snowmaking capacity it has, and the extent of its water resources. Moreover, Wells Fargo studies these numbers much more closely than in the past.
“That’s not to say we can’t make loans to resorts with snowmaking limitations, but the snowmaking capacity has become a more important factor in our underwriting.
Lower-gradient ski areas tend to fare better in this economic calculation. You might be able to make snow, but what’s the point of piling it on steep expert runs?
Diversify revenue-making potential beyond skiing?
“They have always tried,” said de Back, then adds: “Very, very few resorts do better than break even in their summer operations. It’s certainly not the norm to be profitable in summer operations, because it is very difficult to generate the sort of volume you need. It’s unlikely that summer operations will ever compete with winter operations at most ski resorts. It is a business based on snow.”
That recent past has made it easier for him to underwrite loans to ski areas outside of California, rather than in.
de Back won’t talk about climate change. He says he’s not qualified to talk about climate history or speculate on future climatic changes.
Reasons for not changing
But even Aspen Skiing, easily the nation’s most aggressive ski company in advocating climate change policy, has done very little to change its business model. It’s moving to maximize its assets for summer, but that should probably be seen within the context of a story that began in the 1980s or before. Besides, Rocky Mountain resorts, because of their more inland locations, are less vulnerable than the Sierra Nevada to the effects of warming temperatures. Shorter winters, warmer nights, and more frequent rain probably won’t seriously begin pummeling them for a few decades, at least on a steady basis.
Too, ski towns depend upon destination visitors, and DestiMetric’s Garrison points out that they are much less impacted by weather and much more so by the economy. “And any who come in the winter and find that snow is not to their liking, spend time at other activities, and often leave more money behind (shopping, dining, partying) than when on the mountain,” he says.
Still, when you evaluate installation of a new quad lift, which costs maybe $3 million and you hope will last for 20 or maybe even 30 years, how do you figure in the effect of warmer winters? How do you begin this calculation if you’re a public-works manager, a town manager or the mayor of a ski town?
That’s a good reason to pay attention to the Sierra Nevada—not necessarily because of the drought, although that’s plenty interesting, too, but especially because of the warming temperatures. The trend line you saw…is the history by which to evaluate the future, and climate models point to a steady progression in the same, upward direction.