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Home Page > Telluride Area Resources > Local News Hotel Building Boom Set to Take Off in Mountain VillageBy Peter Kentworthy Permission from the Telluride Watch The "critical mass" that Mountain Village developers and real estate brokers have long prophesied may be upon us. As much as one million square feet of new hotel and condo-hotel development is slated to come on line in Mountain Village over the next two to five years. The building boom consists of a potential six large projects, including one that is nearly complete, totaling at least 500 new accommodation units, replete with attendant amenities. The project that is nearly complete is See Forever Village, consisting of high-end condominiums that will be managed by The Peaks. Developer Robert Levine has said he will break ground within weeks on a long-debated, $200 million hotel-condominium project on Lots 50/51 in the Mountain Village Center, which will be operated by St. Regis Hotels. The boutique condominium hotel, Lumière, broke ground last week. Also starting the Mountain Village approvals process are two more large luxury hotels and a large mid-range hotel. What's more, the new corporate owner of The Peaks, the Blackstone Group, has indicated it will make an investment reported to be in the tens of millions of dollars in refurbishing the property. What accounts for the long-awaited boom in so-called "hot beds" changing at last from hot air to hot news? Is it an accident that the Mountain Village construction pipeline is suddenly crowded with new hotel and hotel-type projects? Local developer John Horn admits that part of the explanation might be just that. "It's funny how it works in real estate development," he says. "It's a confluence of individual circumstances, coincidence as much as anything." Horn said that each of the half dozen large projects currently in progress, or slated to begin soon, has a unique history and timeline, and that progress can be fraught with delays and difficulties. The St. Regis is a case in point. Designed as a 100-room hotel with 42 condos, the project has been in the planning and approvals process for six years and has weathered a storm of contention, primarily to do with objections to its height. "It may look as if everything is happening at once," says Horn. "But the reality is different." Contributing to current Mountain Village activity, Horn says, is the fact that sufficient landmass for such large-scale projects simply doesn't exist in Telluride. And, he adds, "If Telluride is going to become the year-round resort we want it to be, these large projects have to come to fruition." Another part of the explanation appears to be a transformation of the condo and hotel markets, in effect a merger of the two. Hotels are risky enterprises, expensive to build and expensive to operate. Wear and tear is often excessive. And customers can be hard to attract, not to mention hard to please and lure back for return visits. A hotel, too, is not an easy thing for a bank to unload following foreclosure. To finance a hotel in light of these downside risks, especially in a resort market, can prove challenging, with few lenders willing to be involved. To lay off the risk and reduce the financing component of their deals, hotel developers have increasingly begun to pre-sell condo units in their projects that the owners can put into the hotel's rental pool of rooms once the project is completed. The result: a condo-hotel. "Selling off condos reduces risk and enables the developer to finance the project," says J.J. Ossola of Peaks Real Estate, who markets Lumière. BRAND APPEAL This approach benefits condo-owners, as well, by giving them the chance to recoup part of their investment through rental payments while also relieving them of the burden of maintenance. If the hotel is managed by a brand name operator, such as St. Regis, a worldwide marketing effort is instantly available to the owner to help ensure the unit stays occupied. And when the owner chooses to use the unit personally, it comes with access to all of the branded hotel's luxury amenities and services. As Ossola puts it, "It's perfect for our economy. It allows people to have a vacation home that doesn't sit empty for eleven months out of the year. And it's hassle-free: everything's taken care of while the owners are here and when they're away" Further fueling condo-hotel growth, the hybrid projects are now enjoying greater acceptance among mortgage lenders so that end-buyers have easier access to financing. Still, risk remains, and one of the biggest in the "hot beds" market is simply getting enough hot bodies to them. Build it and they will come? John Horn thinks that all the current and planned Mountain Village projects have "great attributes." But, he contends, the question remains, "Will there be enough people flowing through to justify them?" Telluride Real Estate Corporation President T.D. Smith thinks there will be enough business to support the new projects, although he concedes that a chicken-and-egg situation exists between bringing accommodation product on line and having sufficient visitors to fill it. Smith and his company represent Honig Aviation, LLC, which recently acquired three commercial lots for $25 million from Telluride Ski and Golf Co. principal owner Chuck Horning. The property west of The Peaks on Country Club Drive is zoned for 70 hotel rooms and 57 condos. A luxury condo-hotel is anticipated for the site. Bringing additional bed base to the region is "the number one thing that this community can do to shore up our economy," says Smith. "It will help exponentially," he explains. "The local economy needs people who are not locked into their penthouse condo." People staying in hotel and condo-hotel rooms, Smith says, "dine out more, shop more and spend more." About the chicken-and-egg conundrum, Smith avers that brand name hotel operators like St. Regis will help ensure occupancy by their global marketing reach. The kind of upscale guests that such operators attract are, in turn, the best target market for sales of condos and fractional units. J.J. Ossola agrees. "Hot beds will give Telluride and Mountain Village the economic vitality they need," he says. He sounds a note of caution, however, concerning possible oversupply of similar product. "Real estate in Telluride," he says, "has historically been ruled by the law of scarcity. Anytime you have a huge influx of supply it can soften things." Smith counters that the various projects will be differentiated enough to stave off such softening. And he says that planned improvements at the Telluride airport should lead to improved regional jet service that will help support the kind of visitor numbers necessary to fill the new projects. ENOUGH AIR? Tom Hess, president of the Telluride/Montrose Regional Air Organization, says that the current financial model that supports the regional airline guarantee program may need to be improved in order to satisfy increased demand for seats. "In theory," says Hess, "as new properties come into existence, lodging tax continues to grow which leads to more money into the program." The problem, Hess says, is that "air operational and fuel costs are increasing at an exponential rate." That rate, he worries, may outstrip the rise in tax receipts. A solution to the problem will come, in part, from the owners and operators of the new properties. "We'll need to figure it out as a region," he says, "If the new projects come on line, they'll have a vested interest in helping us." It's not just air costs that are rising and that could lead to future problems. John Abrams, developer of See Forever Village at the Peaks, points to rapidly escalating building costs due to higher prices for timber, steel, concrete and petroleum stemming from recent hurricane damage and growth in demand from China. "The market has to come to grips with the reality that sale prices of new construction are going to go up dramatically," Abrams says. This is especially the case, he argues, for high-end hotel and condo-hotel product that is required to have substantial common areas. Such elements are expensive to build but don't necessarily generate income, so their costs need to be allocated to the units being sold or rented. "The market for sales may need to go to $1,500 or $2,000 per square foot," says Abrams. "Developers and real estate brokers here have to be prepared for that, especially as land costs and interest rates, both big components of overall costs, are also going up." To concerns about oversupply, Abrams says that a "collision" between the competing projects might be avoided by "the inventory being distributed at a pace spread over two to five years." He admitted, though, that simultaneous pre-sale activities for the different projects could make absorption more difficult and that, in his experience, investors and lenders are strict about pre-sale requirements. If all obstacles are cleared, the planned supply comes on line and is absorbed, and a substantially enlarged volume of new owners and visitors is successfully jetted in and out, big questions still remain about the region's ability to provide adequate service. Boutique inns and luxury hotels demand first class service - lots of it - which means hundreds of new service employees, not to mention managers and administrators. We're back to Telluride's perennial problem," says Horn: "Affordable housing." Smith concurs. "Finding and housing employees is the biggest problem we'll have," he says. "Developers will have to include an employee housing component in order to maintain a high service level." Abrams sees current efforts by developers as inadequate. "It has to be much bigger," he says. Exacerbating the issue is our geography. "Unlike the Vail corridor, we're locked in here," says Abrams. "There's just not much space to build." |
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