Wednesday, March 18, 2009

The Tamarack equation


On March 5, Idaho's Tamarack Resort closed its ski lifts. It was a victim of the 2008 world credit crunch, which had slowed the economy of the American West enough to reverse a 45-year run-up in the prices of recreational properties.

It was also the end of a ski-industry business model first developed by Bill Janss, who purchased Sun Valley Resort from Union Pacific Railroad in 1964. Janss operated Sun Valley's Bald Mountain as the central attraction of a giant housing development. With few modifications, the Janss business model was adopted by every resort in the West.

It was adopted because it worked. Buyers of real estate in any community with golf courses and ski slopes were guaranteed year-to-year, double-digit equity increases. The expectation of a painless and eternal expansion of wealth, along with a 1986 tax law that allowed deductions for million-dollar mortgages, started a building and real estate boom.

The investments that poured into Sun Valley, Aspen, Vail, Telluride, Park City, Whistler and Jackson supported good restaurants, well-groomed mountains and golf courses, private schools, think tanks, architectural firms and skill-intensive, high-tech industries. Retirees flocked to mountain valleys where a day at a ski lodge, sitting at a sunlit table with beer and fellow AARPs, could be had for the price of a lift ticket.

But Tamarack's closure demonstrated that recreational properties could lose value. The outright evaporation of 401(k)s reduced the geriatric presence in resort economies. And by late 2009, young people were leaving resorts for well-paying jobs in hydropower or nuclear plants, or mining, or the military. High-tech industries relocated to India. Once-wealthy retirees moved to budget-conscious group homes in the foreclosed suburbs of Phoenix and Las Vegas.

The emotional value of resort real estate went negative. Families vacationed at Hawaiian hotels while they waited to sell shuttered and expensive-to-heat second homes.

Few in the recreational West had anticipated the effects of deflation, the loss of pensions or rising energy and credit costs. Economic projections by local governments had been based on proliferating tourism, an expanding construction industry, widening tax bases and a churning real-estate market. Plans for airports and parks, and even for road construction and repair, were abandoned. Empty storefronts and vacant lots pockmarked business districts as demand dried up for household goods, art and landscape services.


Among the few resorts able to maintain normal operations was Sun Valley. There, in a recapitulation of the Union Pacific days, the Sinclair Oil Corp. subsidized resort improvements and operations. Even as nearby towns fell into economic depression, guests at the Sun Valley Lodge found a perfectly tended mountain, quality hotels, gourmet food and cognitive relief from the violence and brutal poverty in their own countries.

It was a business model based on a year-to-year, double-digit increase in the price of oil and on vastly fewer visitors paying vastly more money to ski.

But it worked. Before long, entrepreneurs in Aspen, Vail, Telluride, Park City, Whistler and Jackson were putting up huge mountainside luxury hotels for oligarchs foreign and domestic. The new clientele didn't want houses or condos, but they did want the kind of human pampering a hotel could offer. Oil companies, awash in cash, purchased every mountain with a ski lift, and soon plans for environmentally sensitive ski-in, ski-out hotels from New Mexico to the Yukon started appearing in Green Energy ads.

Zoning laws were altered so enormous houses could be divided into small apartments and dormitories. Servant-to-guest ratios of 10-to-1 became common, and dozens of languages were spoken in the laundry rooms and lift shacks of a rejuvenated West. People began partying like it was 1937.

Tamarack was purchased at a sheriff's sale by a Saudi prince. He gave the resort a difficult-to-pronounce Arabic name that loosely translated as The Mountain That Came to Mohammed. Refugees from Middle Eastern wars staffed its facilities, and aside from their refusal to drink alcohol, their AK-47s and their beards, they looked and acted just like the rest of the region's help. They were polite, they were helpful, they smiled and they were just trying to survive in a tough world as best as poor people could.

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