Released 06/07/17 v4.1 Executive summary and full report as PDF. The 32-page report is also available in a print edition at downtown Aspen kiosks (Information Center opposite Paradise Bakery), at Sothebys offices at 415 E. Hyman in the middle of the Aspen Mall, 300 Spring St opposite the Aspen Art Museum and at the Pitkin County Airport magazine kiosk in the luggage area.
Aspen real estate is in turn-a-round mode from a dismal 2016 when global uncertainty curtailed buyers’ appetite for luxury high end second home purchases. Post-election 2016 through Q117, an upper-end Aspen real estate recovery is in full bloom.
Sales over $10M
For 2017 YTD through April 30th, there were 5 property sales over $10M versus 1 sale over $10M during the same period in 2016 – a Monarch on the Park PH condo that sold at $15M/$4,276 sq ft on 2/5/16. Of these 5 sales, (2) were over $20M ea. at an avg. $2,431 sq ft; (3) were between $10-20M at an avg. $2,056 sq ft. If the property is in town and priced over $10M, it should sell above $2,000 sq ft; if out of town, there’s approximately a 15-30% discount for these luxury properties.
Stats: 2017 YTD (Jan 1 – April 30, 2017)
Aspen Single family home sales thru Apr YTD
Unit Sales: +127% (25) thru April ‘17 from (11) thru April ’16
Dollar Sales: +239% $192M thru April ‘17 from $57M thru April ‘16
Aspen condo sales thru Apr YTD
Unit Sales: +13% (43) thru April ‘17 from (38) thru April ‘16
Dollar Sales: +11% $94M thru April ‘17 from $84M thru April ‘16
SMV Single family home sales thru Apr YTD
Unit Sales: -8% (11) thru April ‘17 from (12) thru April ‘16
Dollar Sales: -17% $41M thru April ‘17 from $50M thru April ‘16
SMV condo sales thru Apr YTD
Unit Sales: -6% (29) thru April ‘17 from (31) thru April ‘16
Dollar Sales: -5% $29M thru April ‘17 from $31M thru April ‘16
But not everyone is happy. Reasons: 1) Although Snowmass Village, representing 20-30% of our total combined market at any given time, survived 2016 relatively unscathed – its sales were fairly even with the prior year and it suffered significantly less in 2016 than Aspen – the resort was down mildly in Q117; 2) The surging Aspen market activity grabbing local head-lines these days is very specific: location specific, property specific, style/design specific, property age specific…and then, there’s inside the roundabout (good) and there’s outside (ho-hum). Not all are celebrating.
If one is prepared to pay premium prices and pour money into prescient developer’s pockets who saw the lack of new-built product 2-4 years ago and strategized the redevelopment of prime-located residential properties coming to fruition now, seek out this concentration of in-town, new-built product. Justifiably so.
If one is looking for motivated sellers and good-to-great values in stunningly beautiful settings just 5-15 minutes beyond downtown Aspen, play the contrarian hand and re-discover and embrace the areas and neighborhoods so favored by prior famous and not-so-famous Aspen settlers.
At present, the market strongly favors contemporary and modern over mountain style. In general, properties in the ‘contemporary’ mode whether new, like-new remodel or ‘retro’ cool of high quality are disproportionately preferred by buyers. Homes heavy with timber, logs and statement-making wood finishes, a ubiquitous style much in favor pre-recession during the 2000’s, is not the flavor of today.
However, we may be reaching a point where the costs* and hassles of new construction are so onerous that finding and upgrading / remodeling older homes with “good bones” – creating value with what already exists at half the price of new construction ($400-500 sf) – may make greater sense to a value buyer as well-located lot prices continue to spike upwards and most of the property’s intrinsic value is in the dirt.
* “New construction price per sf range: $600-900, but use $750 for hard costs and add 20% soft costs for design, permitting, etc at $150 sf = $900 all in. Landscape design is part of soft cost design; Landscape install is part of hard cost.”, says Steev Wilson, founder and principal of Aspen’s well-regarded Forum Phi Architects.
Urban versus Rural
Whereas mountain life used to be for getaways and a reprieve from the city, today’s mountain living preferences favor walkability, bikeability, proximity to services, convenience and minimal drive time. “Who has/wants time for rural?” has actually been heard on the street …
Aspen’s experience during the Great Recession has taught us important lessons which we had never previously experienced – at least since the rise of Aspen’s modern day era in the early 1950’s.
Historically, Aspen has suffered recessions similarly to other high end areas of the country but with this singular and important difference: it was last in, first out.
Aspen endured this most recent recession like all other high end, luxury resort communities: sales plummeted, prices dropped slowly in 2009 then with increasing velocity, bargain hunters came in, significant discounted sales took place at 30-55% off 2008 peak prices, “new” market comparables took hold, sellers slowly adjusted to the new normal, buyer confidence began to return.
But the Aspen market may have been irretrievably altered. Instead of last in, first out, we were “in” with everyone else, (simultaneous melt-down everywhere) but slower to recover than other resort areas.
The coastal, urban areas recovered the swiftest with the vacation resort communities following and then the mountain communities. Aspen took longer to bounce back. No longer could we own the “first back” claim. Some mountain areas still haven’t completely recovered.
Aspen’s downtown core properties suffered the least and came back the quickest of all Aspen’s most desirable neighborhoods. Its pre-eminence in terms of this “liquidity- testing” – the ability to trade during the worst of the worst, of value preservation – not losing as much as others, and recovery speed – was unmatched.
It is likely one important factor – amongst a number of trends: traffic concerns and preferences an active, in-town lifestyle – that explains the high prices presently being witnessed in the Core and why downtown continues to become ever-more popular.
In terms of liquidity, this may be patently obvious to most but bears underscoring, the priority Aspen neighborhood buys are, in this order: 1. Aspen core; 2. Historic West End; 3. Lower Red Mountain; 4. Higher Red Mountain.
For value plays, the following areas are worthy of buyer’s focus due to their relative proximity to town but lack of ‘cachet’ and their mixed-use residential zoning characteristics which translates to lower prices: Smuggler area, East Aspen close-in to the Core (Midland and Park Avenues, King St, Gibson Ave, Riverside Dr and Riverside Ave, Lacet Ln, Crystal Rd and Crystal Lake (Aspen Club area) , McSkimming, Eastwood, Knollwood) and West Aspen close-in to Core (E. Hopkins, E. Hyman, Brown Ice Skating Rink areas).
Investor Groups Buying up Aspen
For the past 1-4 years, there have been at least six well-funded real estate investment groups buying up select Aspen commercial and residential properties. In the case of 2-3 of them, their market concentration is substantial and probably game-changing in their influence of local market dynamics.
In commercial, the game is buy ‘n hold: purchase “A” class commercial, upgrade the property, raise rents, hold for the long-term appreciation, the end-game.
In residential, the primary targets are well-located residential properties in Aspen’s downtown core, the historic West End and to a lesser extent Red Mountain. The groups will buy at market, or slightly less, and quickly re-list or “flip” the property as a redevelopment project for sale – often the very next day – at a significant premium, 30% and up, from what they paid. As this report is written, some of their prices are being upped about 5% in anticipation of the high summer selling season.
Over the duration of the listing – until it sells – they will add value by executing the following:
1. Perform a land use inventory analysis of what the property can provide per Aspen zoning rules and regulations. In many cases, this will be performed as part of due diligence, pre-purchase.
2. Create architectural renderings, at times actual plans, for a re-built or new home on the site often, prepared prior to closing and presented as marketing package on the 1st day of the new flipped listing.
3. Begin the Aspen Historical Preservation Commission review if the subject is designated “historical”.
4. Start the site-plan approval process with the Aspen Community Development Department (P&Z).
5. Obtain a building permit, break ground and commence new construction
What the buyer gains in paying these ‘flip’ premiums is: 1) A clear vision and path to the property’s redevelopment; 2) Entry into the City of Aspen or Pitkin County’s development pipeline sooner than later.
As it presently takes approximately 2-3 years to build a new home, time is absolutely money and this sure path makes a lot of sense to some buyers.
“A conservative estimate for the design, approval and permitting process takes about 9-12 months before one can break ground – from first application to breaking ground – currently”, according to Chris Bendon of Bendon-Adams, (formerly Director, City of Aspen Community Development), “This does not include client design at the beginning. It could be quicker especially if there is no historic preservation improvement on the property. But the planning and building departments are very busy these days.” The process used to take 4-6 months.
In a number of recent cases, these new-built or in-process remodeled homes developed by the investor groups have sold at new, barrier-breaking higher price-points. The investors only really needed to sell one of these properties to set a new pricing threshold – they are in fact creating and self-justifying their own market comparables.
Are they ‘controlling’ the market?
They are riding an upward wave which they helped create and has been supported by favorable macro-economic and local real estate trends that they were clever and well-resourced enough to stake out before everyone else. They have set, or at the very least definitively contributed to, the direction of the market.
As long as the market co-operates, the tide rises and everyone benefits; if it turns – and it will, these guys will be the first out dumping it all with everyone else clamoring for the exits in freefall.
Aspen’s 6-Year Real Estate Cycles…?
According to Aspen’s well-respected top appraiser Randy Gold, the longest up cycle Aspen real estate has ever witnessed is 6 years with 2015 as the peak of the 6th year in the recent post-recession cycle. This may explain, in part , the downturn experienced in 2016. As good as 2015 was, 2016 – the 7th or 1st year of the old or new cycle, we don’t know – was as poor. (These cycles can be viewed in the Market Direction charts on pages 15 and 24.)
Does this mean that 2017 is going to be the 2nd year of a down cycle?
As this report is written in early June 2017, it is hard to imagine the year performing poorly. Q1 2017 was the second best performing 1st quarter since 2011, second only to Q1 2015. April and May 2017 are up significantly especially in sales of properties $10M and up. We are off to a solid and positive start with a notable increase in activity over same time last year. (See Estin Report: Monthly Market Snapshots on website.)
This summer peak season awaits and, barring unforeseen events, all expectations are that that it will be busy and transaction driven. We are seeing well-priced, well-located properties go under contract quickly and starting to witness multiple bid situations this spring.
The trends mentioned below draw attention to some market constraints and confirm the accelerated pace of sales we are experiencing.
Building Costs and Construction Challenges
Lumber costs: According to the National Association of Builders, the price of lumber has increased 19% in the past year since May 2016, and it is up 68% since early Jan 2016.
Labor – worker shortage: A Nov 2016 Denver Post headline ran “Colorado’s construction unemployment rate 2.4% versus 5.2% nationally, “. While this unemployment rate has risen slightly in spring 2017, the availability of labor is a challenge. The article went on to explain:
“An aging construction workforce, too few young adults entering the skilled trades, reduced migration by construction workers and wages that lag rising living costs are all contributing to the shortfall. And none of those trends are easy to reverse… In summer 2001 there were 176,100 construction workers on Colorado payrolls and the state’s construction workforce peaked again at 176,900 in summer 2007, according to labor statistics. In Sept. 2016, there were 172,600 construction workers on employer payrolls — the closest Colorado has come to prior peaks. The big difference now is that the state has 1.1 million more people than it did back in 2001. And hidden within those peaks was a very steep valley following the housing downturn and recession.”
Traffic/Transportation constraints: Aspen is at the end of a valley and there’s one way in, one way out for significant truck hauls. In mid-Aug. 2017 for at least 90 days, the Grand Avenue Bridge Replacement Project in Glenwood Springs is expected to cause 1-hour delays for traffic entering and exiting Interstate 70, the main access artery servicing Aspen. It is illegal and impossible for large trucks to come into Aspen from the east over Independence Pass.
Competing construction projects: There at least four large construction projects competing for similar resources all at the same time: OneAspen Townhomes (at the base of Lift 1A), Hotel Jerome, Aspen Club Residences, W Hotel (at the ‘old’ Sky Hotel site).
Construction valuations and record activity: In spite of the constraints mentioned, 2016 was the busiest year in the Aspen City Building Dept since 1989, the beginning of the present chief building inspector’s tenure, according to a Jan 2017 Aspen Times article. Construction valuation based on the number of permits issued in 2016 was $384M. In 2015, it was $179M; in 2014, $224M. The increase in large residential projects is the main reason for the high 2016 valuation.
Real Estate Transfer Tax (RETT)
Property purchases within the City of Aspen are subject to a 1.5% tax. The City Finance Department reported in early May 2017 that “Housing and Wheeler real estate transfer tax collections for April 2017 were up 29%. On an annual basis, collections for real estate transfer taxes are tracking roughly 57% ahead of 2016 figures to date.”. Here are the past four year-to-date collections:
2017 YTD: $2.63M +57% 2016 YTD: $1.67M -51% 2015 YTD: $3.40M +41% 2014 YTD: $2.41M
Aspen Condo Complexes facing Special Assessments – Approximately 90% of Aspen’s condominium supply was built in the 1960’s and 1970’s. Typically, a complex will upgrade its exterior every 10-15 years. Some have upgraded in the present cycle, others have not and are looking old and tired. A number will face expensive exterior remodel special assessments in the next 1-5 years. Condos whose interiors have been re-modeled, are in like-new condition and competitively priced, are selling briskly.
Snowmass Village (the resort)
SMV real estate is truly a bargain compared to Aspen prices: SMV homes are now selling at an average 30 – 40% dis-count and condos at an average -50% discount to Aspen compared to the historical 25-30% pre-recession. The Aspen Ski Co’s purchase of the Base Village properties in Dec. 2016 is fueling optimism that at long last the Base Village will be finished out. Ground breaking for a new Snowmass Limelight Hotel is to occur spring 2017. Other considerable building projects are in the immediate advanced planning and pre-construction pipeline.
Hot Neighborhood Real Estate List
Aspen Downtown Core – sizzling
East End – close to town convenience. Focus is on McSkimming Rd, Riverside Dr, the Aspen Club areas.
Hwy 82 corridor – east from town to Mountain Valley is seeing a critical mass of new activity due to river-front locations and easy downtown access that trumps the once perceived negatives of highway road proximity and traffic.
Historic West End – especially locations east of the 300 block due to its Core proximity.
Red Mountain – premier view properties at premium prices.
Perimeter locations to town – for example, Cemetery Ln area, may represent good value to a buyer who predicts construction costs are rising fast and wants to lock in costs now.
McLain Flats/Starwood, Woody Creek and Old Snowmass – for value buyers, beautiful view lots with older homes and acreage and, generally, motivated sellers.
And remember, in real estate, objective statistics rarely define subjective reality…Aspen is about world class quality of life, family, fun and time is short.
Disclaimer: The statements made in The Estin Report and on Aspen broker Tim Estin’s blog represent the opinions of the author and should not be relied upon exclusively to make real estate decisions. A potential buyer and/or seller is advised to make an independent investigation of the market and of each property before deciding to purchase or to sell. To the extent the statements made herein report facts or conclusions taken from other sources, the information is believed by the author to be reliable, however, the author makes no guarantee concerning the accuracy of the facts and conclusions reported herein. Information concerning particular real estate opportunities can be requested from Tim Estin at 970.309.6163 or by email.
The Estin Report is copyrighted 2017 and all rights reserved. Use is permitted subject to the following attribution with a live link to this website: “The Estin Report on Aspen Real Estate.”