I recently had the good fortune of spending a week in the Colorado Rockies with my wife, taking a much-needed vacation. Although we've lived in the Kansas City area for more than 10 years, we'd never made the trip to the mountains. Man, was that a mistake. The scenery was breathtaking, and the weather turned out to be nearly perfect.
Thanks to a very reasonable winning bid I placed at a Big Brothers Big Sisters auction, we were able to stay in one of the more high-dollar resort areas — Beaver Creek. Although our spacious two-bedroom condo was somewhat dated, its prime location typically demands extremely high rental rates, leading me to wonder how they ever find enough people to fill their rental calendar each year. But from what I learned, this isn't a problem.
As we ventured out on our daily road trips to several other mountain towns, I couldn't help but notice the high number of real estate offices in the area — each and every one of them featuring an abundance of condos for sale in their office windows. Being the type of person that always dreams of owning property in beautiful vacation spots around the country, I always stop to scan the offerings. And I'm always amazed at the asking prices for these relatively small pieces of real estate. For example, in the Beaver Creak area, many topped the $1 million mark. Again, I wonder how do people afford to buy these units? Is the demand for these high-dollar residences that strong? Apparently it has been of late. But the question is, how long will it last?
We all know the residential housing market is cooling off. Similarly, some construction analysts are predicting a severe slowdown for the condo market. The same feelings apply to the second-home markets in resort and vacation areas. Even if the traditional new condo market turns cold, projections for three important sectors of the lodging development pipeline remain fairly strong through 2008 — condo hotels, hotels with private residences, and timeshare and vacation club projects, according to Lodging Econometrics (LE) of Portsmouth, N.H.
Originally introduced in the 1980s, the condo hotel concept became popular again in 2003 as developers worked hard to secure construction loans. One method they used to drive down their initial investment and keep projects moving forward was to pre-sell a portion of the hotel units in their new buildings as condos to help finance the project. LE reports projects in Las Vegas, Orlando, Fla., Miami, and Fort Lauderdale, Fla. currently account for close to 40% of this market segment. Many of these “hotels with private residences” fall in the luxury market segment of major cities like Boston, Chicago, Miami, New York, Orlando, Fla., and Seattle. Although rising construction costs, escalating interest rates, and a softening of the residential and second-home real estate markets will create a rapid dropoff of new project announcements in this arena, the current pipeline should remain strong through 2008.
For those of you that work in this construction sector, that's good news. For those of you dreaming of owning a small piece of real estate in a beautiful vacation spot, like me, it's not. I guess I'll still be making my weekly stop at the grocery store to plunk down a few bucks on the Lotto.
For more information on market trends, turn to our cover story on page 34, which highlights the most important findings from EC&M's annual Top 50 Electrical Contractor survey, including which market segments they're expecting to be hot and cold this year.