2007 Market Summary

Year in Review

Vail Valley Market Remains Solid!

With year-end numbers hot-off-the-press, the Vail Valley real estate market has established a new, all-time record of over $2.96 billion in sales. This number represents a 7% jump over 2006, and is more than $160 million greater than our previous record, established in 2005. This solid growth is backed up by an equally solid inventory of available properties and new developments from which to choose, thus laying the foundation for continued strength in our market.

Many would say that our sales success “bucks the trends” so widely touted in national magazines, newspapers and on-line, most of which claim a disastrous real estate market. Yet the facts are that many luxury and resort markets across the country remain quite healthy. A recent Newsweek article titled “What Housing Crisis?” stated that sales of homes costing $5 million and more were up 31% in the first quarter of 2007. According to luxury broker Prudential Douglas Elliman of New York, sales of Manhattan apartments costing $10 million and more tripled in 2007… hardly reflective of a flagging market.

Regionally, this trend also holds true throughout the intermountain west, as well as here in the Vail Valley. Routt County (Steamboat) sales jumped 42% in 2007, and Summit County (Copper Mountain, Breckenridge and Keystone) broke even with the strong prior year. And while Pitkin County (Aspen) sales were off 5%, Aspen’s rapidly-growing “down valley” markets in Garfield County showed a 17% jump. Whether in New York, Beverly Hills, Vail or Aspen, luxury markets attract a clientele that is not overly impacted by interest rate swings, stock market volatility, etc. In fact, many astute individuals see high-end resort areas such as the Vail Valley as a “safe haven” in which to place a portion of their funds.

High-end niche leading the way

The high-end niche of our market continues to lead the way, demonstrated by strong sales gains across the board. Sales of properties listed at $1 million and above grew by 17% in 2007. More notably, sales between $3 - 5 million are up almost 41% over two years ago… properties listed between $5 - $10 million are up 133%... and sales of properties listed at $10 million and up have grown by 100% over 2005. Given the continued strong showing activity in this luxury niche, as well as the new product coming on-line over the next 24 – 36 months, I expect this trend to continue well into the future.

New developments selling very well

New developments up and down the Vail Valley continue to sell very well, and at prices that are unprecedented in our market. Many are already sold out, and others are experiencing strong and balanced sales, with sell-outs predicted over the coming year. This success is leading to many more projects in the development stage, and what started out as Vail’s so-called “Billion Dollar Renaissance” will end up being a multi-billion re-creation of Vail and Lionshead. Prices for new property in Vail Village most generally range from $2,000 - $3,000/sf, and new properties in Lionshead now command $1,700 - $2,000/sf and more. The market has proven receptive to these prices, given the quality, services and perfect locations offered by many of these developments.

2007 was also a record year for construction

Vail’s 2007 construction activity has once again surpassed any previous year, according to Town of Vail records. Vail’s Community Development Department issued over $496 million in permit valuations, which are based on construction values. This number represents an approximate 40% increase over Vail’s previous record of $355 million, set in the prior year. Of particular note, 2007 marks the fifth consecutive year for record construction activity.

What’s behind this growth?

The activity in our market, as well as in premiere resorts and luxury markets throughout the country, is being fueled by many diverse factors. Collectively, they add up to create strong demand for first-tier, high-end real estate… whether located in Manhattan, San Francisco, Palm Beach or Vail.

First and foremost, there is a large and growing pool of wealth, both old and new, circulating the globe. According to Merrill Lynch’s World Wealth report published in June, 2007, the number of “ultra-high net worth” individuals… those with $30 million or more… increased by more than 11% over the prior year. Also, it states that there are approximately 9.5 million millionaires worldwide, a jump of over 8% from the previous year’s report.

Another key factor in this growth is purely demographics-driven. Members of the Baby Boomer Generation, many of whom have created significant personal wealth, are now coming into their peak years for acquiring second and third homes. As we continue to mature, this trend will continue well into the future. Supplementing the personal success of this generation is the largest transfer of wealth ever recorded from one generation to another, which has already started taking place and will continue for many years to come.

In spite of its recent ups-and-downs, the stock market has created significant wealth over the past few years. The tech market is rebounding nicely, and the continued success of companies such as Google, Apple and other trendsetters in the tech industry are adding new luster to this sector, attracting additional investment, innovation and success. Bonuses on Wall Street continue to be strong, and many high net worth individuals are now taking their profits from stock sales and allocating a portion of the money to more tangible assets such as luxury real estate.

Speaking of technology, many innovations over the past ten years have empowered corporate executives and successful entrepreneurs to be able to effectively conduct business from remote locations such as Vail and Beaver Creek. The end result is that they are now able to spend several months in the mountains, versus only a couple of weeks as in years past, thus making it much easier to justify acquiring resort property. As such, technology has opened up a new pool of potential buyers for Vail Valley real estate, many of whom are taking full advantage of this opportunity.

Lastly, the growing international economy is creating significant new wealth in areas such as India, Russia and others. An article in the February 6, 2008 Denver Post highlighted the influx of wealthy families from Russia, just the latest in a long line of international travelers attracted to the Vail Valley. The current, highly-favorable exchange rate also has an impact, making Vail Valley real estate seem a relative bargain to foreign buyers. I expect this to become even more significant in years to come.

In summary, unprecedented levels of personal, world-wide wealth is now chasing what is a very limited product, i.e., high-quality resort real estate, with predictable impacts on both inventory and prices.

What’s to come?

I look at the current economic uncertainties as having a nominal impact on the high end of our market. Looking back over the past twenty years, we have successfully ridden through storms that many pundits had predicted would derail our real estate market. Black Monday in 1987… the Iraqi invasion of Kuwait in 1990… the Asian financial crises in 1997… the tech market meltdown in 2000, the September 11 attacks… the outbreak of accounting/corporate scandals in 2002… and the outbreak of the second Iraq war. Each of these could have realistically been expected to have a hugely negative impact on Vail Valley real estate. Yet the overall trend in our market has been one of strong activity and growth. I expect the same will occur this time around, even given the current economic environment.

One interesting comparison to consider is as follows… in 1987, Eagle County tallied appx $251 million in sales and 1,326 transactions, which was considered a big year. In 2007, we accomplished $2.96 billion in sales, and almost 2,800 transactions! It will be fascinating to see where our future takes us.

In summary, Beaver Creek and Bachelor Gulch are essentially built-out, and Vail will soon follow suit upon completion of the multi-billion “renaissance” currently taking place. When combined with the growing world-wide demand for premium resort properties, our future remains very bright. While past results do not guarantee future success, I can say that all the pieces are in place to help ensure that we will enjoy many, many years of strong market activity.