Whistler RE Bust Continues – “A unit originally sold in the Four Seasons Whistler for about $1.1 million was recently resold for only $520,000. … It’s not anything wrong with Whistler or that Whistler is worth less”

Those who own a condo unit in a Whistler hotel are sitting on great potential, but at the moment the units are not showing great value.
Real estate consultant Denise Brown with Re/Max Sea to Sky Real Estate reported that a unit originally sold in the Four Seasons Whistler for about $1.1 million was recently resold for only $520,000.


“We’ve seen the prices come down significantly,” she said.
According to Brown, this segment of the real estate business is at the bottom of the cycle so prices are good right now. She said the people who are happiest in the condo hotel market are those who are in for the long-term and have made a lifestyle choice in purchasing a condo unit in a hotel.
“It is only those people who are looking for a lifestyle that own their own property in a complex that they like and believe in and want to use with their family,” she said.


Pat Kelly, from the Whistler Real Estate Company, said when condo hotel units first became available in Whistler expectations were high.
“People were buying on vision,” said Kelly. “Revenue has not met expectations in the last few years.”
According to Kelly, the lower than expected revenues produced through hotel condo units has combined with exchange rates, high strata fees, high property taxes and fixed overhead costs to drive prices down.
“The market is now valuing these things properly,” Kelly said. …
“Some of our friends to the south have had to do some pretty significant financial rationalization, which has caused them to want to sell things,” he said.
According to Brown, the people who were relying on the hotel condo units to produce high returns beyond covering all the costs associated with owning this type of property are getting out of their investments.


“It’s not anything wrong with Whistler or that Whistler is worth less,” said Kelly. “It is just that people are prepared to spend less.”

– from ‘Hotel condominium units hit hard by current economy’, John French, Pique, 1 Mar 2012

—-

“Great potential, but at the moment the units are not showing great value.”
“It’s not anything wrong with Whistler or that Whistler is worth less.”
(This from the same guys, we’ll bet, who used to say stuff like “real estate is worth whatever somebody is prepared to pay for it”.)
– vreaa

53 responses to “Whistler RE Bust Continues – “A unit originally sold in the Four Seasons Whistler for about $1.1 million was recently resold for only $520,000. … It’s not anything wrong with Whistler or that Whistler is worth less”

  1. “…pretty significant financial rationalization…”

    1984-ish.

    Not the year. The book.

  2. Renters Revenge

    “The market is now valuing these things properly,” Kelly said.

    Save that under “it’s only a flesh wound!”

  3. Basement Suite

    In other news, a tulip owner recently resold his tulip bulb for $1, the same bulb having been purchased for the equivalent of $100,000 back at the top of the tulip ‘cycle’. A Realtor in Holland said recently of this transaction, “It is only those people who are looking for a lifestyle that own their own tulip that they like and believe in and want to enjoy with their family.” In other words, do not worry about the loss of 99.999% of your equity. We are just at the bottom of the tulip cycle right now, and as long as that tulip is pretty and you enjoy looking at it, it was well worth the million bucks.

  4. Ralph Cramdown

    According to Brown, the people who were relying on the hotel condo units to produce high returns beyond covering all the costs associated with owning this type of property are getting out of their investments.

    “High” returns? Or any at all? Were these gormless investors living in fantasyland, just believing the projections that came in the prospectus, or maybe both? I’d love to see the original marketing material.

    • Vacation properties are not investments. They are trophies.

      • Agreed. I was looking into some sort of vacation property for awhile.

        Then I realized that for about one-half of one month’s mortgage payment on a second home, I could take the whole family to the same location for nearly a week and just rent a place. We could do that a few times a year, or we could change our mind and go to another great town/resort. All of this would cost significantly less than buying, furnishing and maintaining a second home.

        The money not spent on a second mortgage goes into other investments. Once I saw it that way, I was never tempted to own vacation property again.

      • And calling cards. Price of admission to a certain social circle.

      • Jeff, you’re an aunthentic “Darling” [in the ShowBiz sense].

        Now… as all ‘ShowRunners’ are wont to do, when – alcohol&tobacco infused – they ‘tremble’ at the prospect of creating a new season which surpasses the previous, EmmyWinningOuting… ‘Nem’ has, and not without due trepidation, been staring at the ‘blank page’… and the TeraByte archives of existing capture… and wondering. Wondering how best to launch Season2 of “BlastRadius”.

        …and then… Finally!… the semiotic/thematic epiphany [thanks to Jeff].

        Here’s your TeaserTrailer, DearReaders… apart from this, no further hints… [Soon, IlustriousEd… So very soon.]

  5. “According to Brown, this segment of the real estate business is at the bottom of the cycle so prices are good right now” —- Is that not just an incredible line? Bottom of the cycle. Got to be kidding. I think they are drinking their own potions over there because in fact we are at the top of the R/E cycle in the most important parts of the country which really means Whistler is in for a Phoenix kind of moment.

    Nothing surprises for resort communities that lack real jobs and depend upon tourism for their life blood. But if Whistler is the canary in the coalmine then 80% discounts or more will be the norm there before all is said and done. More telling, the rest of us are probably in for a US style correction.

    • Basement Suite

      Agreed there is a ways to go. “only $520,000” for that unit is going to look over-priced still (which it is) when the curtain is lifted all the way.

  6. use of language shaped for one purpose to describe contrary outcome. results almost yogi bear-ish profound. fascinating. 🙂 reload old testament and maybe things come into focus.

  7. All ski resorts accross BC have been hit hard during these tough economic times. It’s really sad to see Whistler struggling the way they have been in the last few years. The worst has yet to be seen. In the next decade, watch for global warming to bring warmer conditions and less snow. I’ve been riding Whistler since 1997 and have noticed temperature change and snow quality due to warmer conditions. That’s so sad 😰

  8. patriotz started a “bottom call” forum topic on vancouverpeak.com.
    http://vancouverpeak.com/groups/general-chatter/forum/topic/bottom-call-thread/

    “According to Brown, this segment of the real estate business (Whistler hotel condos) is at the bottom of the cycle so prices are good right now.”

    That’d be the call o’ the bottom.

    • Unrelated aside, Jesse… re: detiorating GlobalMacro… Spain is, indeed, well worth watching, Jesse… it’s already ‘mucho’ bad and getting ‘worse’ [google: Workers in Jerez struggle without pay in indebted Spain]. That said, I expect ‘worse’ to manifest in Blighty. DiamondJubilee’s and OlympianFunFests have a funny way of ‘irritating’ the 99ers who weren’t included on the official guest list. Last year, during London’s BonfireOfTheVanities… you may recall that the ‘revelers’ temporarily impeding Charles&Camilla’s little theatre jaunt spontaneously broke into chants of, “Off With Their Heads!”.

      • “Off With Their Heads”

        What is the world coming to when British use French allusions to pester the Germans.

      • Aldus Huxtable

        But Nem, they are taxing the pastys now and it wiped £20m off the value of our fabled working class institution of Gregg’s. I suppose they could have paid £250k to share a steak bake with Cameron and all could be resolved.

        Riot report states youth disenfranchised and feel they have no investment in society. Interesting parallel will not be drawn in MSM in Van.

        Yes, you are right, good soles required on shoes as the boat lurches forward..

      • @Jesse…

  9. So with these hotel units, you have to pay strata fees, property taxes, and a 40% management fees? That’s a lot of overhead to cover….the unit pretty much have to rent out at least 50% of the time at pretty high prices?? Given that the management company is the hotel itself, how likely is it that advertising, room allocation, etc will go to the hotel own units first? Seems like a huge conflict of interest here.

    Also 40% management fee?? That sounds atrocious! Isn’t standard regular rental management fee more like 10% or 1st month rent in a 1 year lease?

    • pricedoutfornow

      My sister-in-law owns this type of property. Year after year they realize about $10k in losses. The costs are high and the management company takes 40% of every dollar earned in rent (it’s only rented about 110 days a year). Even in 2010, the Olympic year they lost money. The management company also dictates what updates (new tv, new carpets etc) need to be done to each unit. You must comply, otherwise they won’t put your unit in the rental pool. It’s such a losing venture for any investor, I don’t know how any investor could be duped into such a scheme!
      The kicker for my sister-in-law? They don’t even ski, so they can’t even use the lifestyle argument. Plus it’s a studio unit, hard to fit a family of 4 in comfortable. Bad investment, despite what she’s tried to tell me for years. Who has the last laugh anyway…

    • Hotel companies make their money renting hotel rooms. One must wonder why they would consider creating this ownership structure, rather than just running a hotel and keeping the revenue for themselves.

      How obscenely overpriced would units have to be to induce a hotel company to undertake a complicated ownership structure and to forego 60% of rental revenues? Hmmm.

      • Basement Suite

        Well pricedoutfornow said “Year after year [the investor realizes] about $10k in losses”, and that is going into the pocket of the hotel. So when all is said and done, fees, rent on otherwise empty rooms, etc., the hotel makes $10k per year more from that room (from the “investor”), PLUS the huge sale price. Hotel:1, Investor: 0.

      • Basement Suite

        P.s. By “rent on otherwise empty rooms”, I mean their room update fees (strata?). Total scam!

      • Snats -> “why they would consider creating this ownership structure”

        It’s called return on assets or ROA. Lower your assets and that increases your ROA. That’s why airline companies don’t own their planes.

      • Basement Suite

        In this case though Makaya they make straight profit, not just per asset dollar, but straight up $10k more revenue from the same room. Even without the ROA idea, the hotel wins.

      • Basement Suite

        Correction – Unless the $10k annual loss included mortage payment, which now that I think about it I guess it probably does. So you’re right who knows if the annual revenue the hotel gets excluding the purchase price is a net positive, but it’s net good for the hotel when you factor in sale price of course. With all those fees, maybe even without, but as you say ROA factored in, for sure it’s better. In any case, the hotel did get the purchase price, and at -10k a year, the “Investor” loses.

      • Ralph Cramdown

        Actually, there’s been a division between management and property ownership in the big hotel names for a few years now, too. Of course, if you’ve got a 400 unit property in a primo location, or several, you can negotiate a real management deal with one of several name/management groups. If you’re an “investor” in one unit with a take-it-or-leave management agreement? Well, if you can’t spot the sucker at the table…

      • Not owning the assets on a property that will only be fully occupied a few months of the year makes a lot of sense.

  10. There are millions of Americans with underwater mortgages. If they only knew that what they really have is not a suffocating financial burden, but a “great potential” that they can be proud to own rent from the bank.

  11. I personally have a friend that bought a one bedroom at Creekside only to realize they wanted a 2 bedroom unit. The developer gave them a great deal on a 2 bedroom and told them that if they bought a 2 bedroom he would help them sell the 1 bedroom unit. Guess what now they are stuck with two units that have dropped in price and they have to pay all the fees. They can’t get out of these units without taking a major haircut.

    • Illiquid market is illiquid. Still, Creekside is a nice city and everyone wants to ski there. My motto of choice:
      “Creekside. We’re closer.”

  12. Renters Revenge

    Time To Concede Home ‘Ownership’ Is A Fraud
    “It is appalling and obscene that we assume as a normative condition spending 5-6 times the perceived market value (debt-based value) of a house over a lifetime when costs of principal, interest, taxes, and maintenance/improvements are included, whereas the rentiers have little or no accompanying social obligations to support public infrastructure required for productive enterprise. Worse yet, in the process of favoring and enabling the rentier domination, we punitively tax labor, production, productive capital investment, savings, and productive capital accumulation while encouraging rentier speculation, waste, ecological degradation, and resource depletion.”
    http://articles.businessinsider.com/2012-01-20/markets/30645625_1_unreal-estate-income-home-prices

  13. typical. am hearing bearish chatter re: van office space. meanwhile
    http://tinyurl.com/7r32sx7

  14. Snats: Yeah. Trophies indeed.

    I have some relatives who spent some pretty pennies on a vacation place in another part of the country. Over the past year everything around them has gone up for sale. And, meanwhile, they have all sorts of issues to deal with on their property… we’re talking 10’s of thousands of dollars worth.

    That said, they have the cash flow to deal with it. But when they were first considering buying I specifically said to them that I didn’t think it was a great investment. They scoffed and said something like the good old “real estate always goes up” phrase.

    Well now they’re learning.

    They’ve had to hire someone to do regular maintenance. Someone else is hired to clean up between guests. And they’ve hired someone else to arrange bookings for guests as well. All this, and the aforementioned maintenance issues all over the place… and in a buyer’s market at that.

    If they didn’t have the cash flow, they’d be sunk right now. As it is, I’m sure that it’s a fairly major drain on their lives. And I’d be surprised if they get more than three weeks a year of vacation time there anyhow.

    Completely nuts.

  15. model of stability
    http://www.cppib.ca/Results/
    choppers are gassed and ready to go. and btw, where did all of canada’s hard money reserves go? many will be thanking god for sprott.

    • Ralph Cramdown

      You mean “haircut” Sprott and his sidekick Bighead? Yeah, THEY turned in some impressive numbers this week.

      • reference is to the physical etfs which are good vehicles that have worked fine for the so inclined. with rule since mid-decade – done well, learned lots. aside from scp, know little about the other stuff but of course it’s going to vary a lot in risk/volatility. it is the nature of resource sector projects. caveat utilitor. otoh, chart of the national pension plan looking like that is a shocking big red flag – especially considering what they’re buying at right at this pt in time. i really had no idea that is what they were doing.

  16. Lower interest, increase money supply through debt, drain savings through inflation, tax profits, raise interest rates forcing foreclosure, and finally buy up depreciated collateral. This is the banker game since Nixon took the people off the gold standard and printed elastic cash, thus hiding real value beneath lender inflated value. A long and glorious forty year bull market run now ends. We shift from consumption to production models. Canada ignored the 2008 start of a long bear market in consumption. And bankers knew this, that’s why consumers were set up for the fall and lenders now withdraw from real estate invest in production. Real estate agents are unwitting parasites to the plan, no more educated than a gas jockey is about refining west Texas crude.

    The real value of collateral is its worth in a market without lenders or inflation, ie, how much would the common person save and pay for a home? It’s easy to figure out: 2.5 x average yearly income=rule of thumb residential value. Real estate must drop 75% to find this equilibrium, on the condition that wages do not drop. Rental incomes are starting to reflect this. So, in the current rental pool, what must an investor spend to break even? 75% less, because what separates the owner and the renter is the downpayment and the carrying charges. Speculative equity is a ruse to indenture pedestrian borrowers.

    “the people who are happiest in the condo hotel market are those who are in for the long-term and have made a lifestyle choice” – Brown
    This is emotional rationale and a business fail. First adopters in the introductory business cycle sell into a growth cycle before economy of scale kicks in. This makes it easy to predict what the next boom will be. Repo and utilities.

  17. It looks like the hotels in Whistler really found a good model. First build the hotel and sell a bunch of units so you get your hotel for free, if not at a profit. Since the industry average is actually only 30% to 60% capacity utilization throughout the year, the hotels can sell half of the planned units which are going into the rental pool anyways, and keep their own units rented have much higher utilization rate. By charging 40% management fees they aren’t exactly losing any money on the units sold to “investors” since it’s extremely unlikely their gross profit margin would be much higher than 40% anyways. Add in the fact they now no longer have to worry about property maintenance reservers, property taxes, utilities, and regular suite updating (all pushed onto the condo investor), all in all it’s a really sweet deals.

    I was looking at units in the Delta/Marriott hotel at Vancouver Downtown on Hasting and Alberni a few years back. The RE agent said the unit was returning 7% last year. However given the negative outlook with Vancouver cruiseship business, that doesn’t look very sustainable to me. That’s before I knew about all these potential pitfalls that were highlighted with the Whistler condos.

    This makes me feel a lot better about my timeshare purchase, even though I still regret that as a huge mistake.

  18. A quick note, as I mentioned on vancouvercondo.info, these are hotel condos which are not the same as owner-occupied condos. The hotel condo market has been in trouble for a while now, even hitting the Business in Vancouver paper last month as the scheme being a total flop. It involves people buying individual suites that are then rented out on short term tenure (hotel). Very sensitive to occupancy rates and management expenses. The model was a failure and it’s little wonder these things are trading so low.

    I don’t think strata-title condos are selling at 50% off peak, but who knows; my bet is if there is something 50% off there’s probably a good reason for it. Nonetheless, the market is so illiquid right now it might not hurt to lowball a few offers in and see what sticks. If you want a Whistler condo that is.

  19. just to point out that at 50% off this drop in Whistler is bigger than anything that’s happened in Britain. Does this suggest similar drops in Lower Mainland in the future? Maybe I was wrong in my call for a 15-20% drop in YVR prices followed by stagnation… maybe it IS going to be bigger…

    • Basement Suite

      “Maybe I was wrong in my call for a 15-20% drop in YVR prices followed by stagnation… maybe it IS going to be bigger…”

      I still doubt it for Vancouver unless pigs fly above the frozen wasteland of hell and mortgage rates actually claw their way well above 3%, and I mean WELL above 3% (i.e., 6% one day in the distant future–DARE I dream?). Otherwise, I suspect a lot of hungry renters will jump on the perceived deals come a 20% dip, and we will bounce; they can certainly still make their payments on grossly overpriced RE with it costing nothing to borrow a dollar. Lets hope I’m wrong.

      • It is going to be bigger. Fifty percent is a minimum correction. Even as prices fall and the last of the buyers try to take advantage of a failing market, the correction will proceed. What you need to understand is that there are not sufficient buyers remaining to propel prices higher anymore. The buying power has been used up and immigrant purchases are wholly insufficient to buoy the market beyond its lofty heights. So save your pennies Basement. A chance to get in at a discount is coming as surely as night follows day.

      • Farmer -> Agreed.
        50%-off, absolute minimum; hard to see any other way of this playing out.

      • The current charts are damning while historical records of booms/bust cannot be refuted and all signs now point to a major corrective pattern that will play out to its conclusion without regard to intervention by any party.

        Even the Realtors have lost control.

    • Craig, the truth is that we are only speaking about a very specific class of real estate here. It is not ALL Whistler condos that are selling at 50% off. Likewise this is not the experience all over Canada. Only those condo-style units in the Hotel developments are in such bad shape.

      Still, it is an early warning sign and one we must pay attention to. Anytime we experience a decline this sharp it is a cause for real concern because it is a harbinger of what is coming down the road.

      Resort properties generally are the first to get hurt as residential real estate declines or is under pressure. We expect this. It is normal so we will not get alarmist as excess purchases are swept out of the system and balance returns.

      It is a good thing actually. Rejoice.

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