As Fortress Investment Group LLC struggled to keep control of its Whistler Blackcomb Ski Resort during the Winter Olympics, Rick Jensen managed to steal a small jewel from the resort operator’s crown.
The former three-term mayor of Cranbrook, B.C., gathered a group of friends and persuaded them to bid for Panorama Mountain Village, a fully developed ski hill with underdeveloped real estate potential just outside Invermere, B.C., a 3 and 1/2-hour drive from Calgary. Late last winter, Mr. Jensen’s group took ownership of the resort for a reported $27-million.
Their bold gamble will provide one of the first tests of whether a recovering economy will restore consumer demand for Canadian resort property, a market that was hammered by the recession.
The financial crisis saw many cash-strapped resort owners lose their properties to creditors or sell low to cut their losses. New owners are racing to figure out how to turn their bucolic retreats into profitable paradises.
But the appetite for pricey vacation properties hours away from urban centres is suffering as potential buyers ponder the effect that recent interest rate increases by the Bank of Canada will have on their family finances, especially as the national housing market shows signs of cooling.
After six months of sharp increases, the average residential resale price in Canada slipped to $342,662 in June, a fall of 1.2 per cent from a month earlier, the Canadian Real Estate Association said. The dip marked the first month-over-month decline this year.
See more photos of the B.C. ski destination
That hasn’t stopped Mr. Jensen from proceeding with his plan to turn the resort – which the group bought with cash, but plans to mortgage to finance development – into one of the only ski-in, ski-out residential neighbourhoods in the region.
“We’ve made some changes that have been meant to elevate the guest experience, but what we need to focus on is development,” Mr. Jensen said. “We have a 30-lot subdivision that is in the process of being approved. We have a lot of raw land and a lot of pent-up demand.”
He hopes to offer lots for sale at around $150,000 each, with construction beginning next summer.
Like Mr. Jensen, other new resort owners are also counting on making money from real estate – the very thing that got the original owners into trouble in the first place. Most resorts were never designed to pay the bills with revenue earned from tourists. The real money – in theory, anyway – is in condo development.
Money from each condo sale can be used to finance more development, so building and selling a steady stream of new units is key to success. If people stop buying, owners often find themselves unable to service their debts.
The main reason Mr. Jensen and his group were able to buy Panorama is because a troubled U.S. real estate market devastated the balance sheet of Fortress, the parent company of Intrawest ULC , which operated the resort. Unable to make payments on $1.4-billion in debt (U.S.), Fortress had to unload assets in Canada and the U.S., but was able to refinance its debt and hold on to its prized Whistler Blackcomb resort.
Other resorts are on the auction block. In Ontario, the Deerhurst Resort was put up for sale this month just weeks after playing host to the Group of Eight summit. The 221-room Rosseau Resort, just west of Deerhurst, is in the hands of its creditors.
Lack of access to capital is a major problem for many resort owners, said Sheldon Esbin, the managing general partner of Romspen Investment Corp. in Toronto, which provides short-term lending to operators in the sector. He said owners who take on too much debt can be wiped out when sales slow.
“Most of the people we see do not have patient money and they think they finance with debt and everything will work out,” he said. “Well, anything is possible. But just because you have a beautiful piece of land with a nice waterfront doesn’t mean people will want to buy property. It’s all wonderful, until nobody is showing up in your sales centre.”
Some owners are adopting new approaches to unloading their inventory of condos. The Residences at Fairmont Ridge in Fairmont Hot Springs, B.C., once hoped to sell townhouses to families to use as second homes, but is now focusing its efforts on selling prospective tenants tiny slivers of ownership for much lower prices. The original business plan offered buyers full or quarter ownership in a unit. Now, customers can buy as little as 1/16th ownership.
Marketing manager Jay Hardy, who is also director of the real estate development program at the University of Calgary, said allowing those looking for a vacation property to buy for less has helped the company survive the recession, if not prosper.
“Recreational property is the first to go in the tank and the last to come back,” he said. “We’ve been moderately successful, but the real key to prosperity is patience. This market will come back, but I think it won’t be until some time in 2011.”
NO HOLIDAY FOR RESORTS
In the wake of the recession the resort industry has been in upheaval. Among the high-profile properties affected:
Whistler Blackcomb: The B.C. resort’s owner, Intrawest ULC, defaulted on its debt last December, just before Whistler was to play host to the Winter Olympics. Intrawest has since refinanced its debt.
The Rosseau: The landmark resort in Ontario’s Muskoka region was placed on the auction block in January after lenders pulled financing. The sale was cancelled in April, leaving the property in the hands of creditors.
Deerhurst Resort: The prestigious resort in Ontario cottage country was put up for sale this month, weeks after playing host to the Group of Eight summit. Owners say they want to take advantage of the resort’s increased profile.