A new direction
Sale of East West Resorts shows rental demand
The recent decision of Edwards-based East West Resorts to sell its property management contracts in Steamboat Springs underscores the increasing competitiveness in the industry and the trend toward consolidation.
East West officials announced the company would transfer its management contracts on about 130 resort condominiums here to two other well-established management companies, Mountain Resorts and Steamboat Resorts.
Mountain Resorts acquired about 65 units within properties in the larger Storm Meadows development. And Steamboat Resorts acquired a similar number of units at Eagle Ridge Lodge, Eagle Ridge Townhomes and Waterstone.
“I think it has a lot to do with critical mass,” Steamboat Resorts Marketing Director Tim Johnson said of East West’s pullout. They didn’t have enough units, “to truly support their presence in the valley and their staff. It just wasn’t enough, especially in these challenging times.”
In the post-Sept. 11, 2001, resort travel environment, property management companies are working with narrower margins, Johnson said. Companies need to have more units under their control to justify all of the costs associated with providing the luxury services vacationers expect, he added.
Mountain Resorts President Jim Spillane agreed.
“Ever since 9/11, we all know what’s happened with discounting,” Spillane said. “When there were some smaller management companies here, they wound up having to compete against each other for business. It drove down rental splits and management fees. They had to lower prices, and that impacted revenue.”
Mountain Resorts has absorbed the business of smaller companies including Big Country Management and Johnston Shipley Management.
East West is not a small management company — in addition to a major presence in the Vail Valley, the company manages properties in South Carolina and California. However, since purchasing Steamboat Management Group in 1996, it has been unable to increase its market share.
“Our focus on high-quality guest and homeowner services is such that we would have needed much more rental inventory to provide for a good growth opportunity for us and our staff,” East West Chief Operating Officer John Evans said in a statement.
East West is known for aligning itself with new development opportunities, and Evans said the company will shift its priorities away from Steamboat to new projects such as the Grand Lodge Crested Butte and developments in Lake Tahoe, Calif., and Deer Valley, Utah.
The situation relegated East West to the undesirable role of remaining a smaller player here. It didn’t allow East West to support the staff it needed to provide the level of service it is known for, Johnson said. Like his company, East West has set a standard of offering many of the services that typically come with a luxury hotel, but in a condominium setting. East West did not have the market share here to justify offering concierge services, for example.
Spillane said conditions in the resort property management industry make it tough on companies with relatively small numbers of units under contract.
“That model worked for a long, long time,” he said. “Now you’re looking at a situation in which that business model no longer works.”
Today, management companies must generate more in gross rents than they needed a decade ago to remain on the field.
“A smaller company can’t play the game anymore,” Spillane said. Opportunities still exist for management companies that occupy a very small niche, he said, but as soon as they attempt to grow, they may undermine their position.
“You’re either a great big company, or you’re a little bitty company with almost no overhead,” Spillane said.
The reasons are numerous, but the cost of effectively marketing vacation properties is a significant one.
Consumers now shop for resort accommodations on the Internet, and increasingly, they expect to be able to take a virtual tour, not just of a typical condo unit, but of every unit in a given property, Johnson said.
Staffing costs are growing in expensive mountain communities, and his company strives to retain employees year-round to have a well-trained staff that meets customer expectations. The cost of living in Steamboat drives up payroll costs.
Vacationers’ expectations for amenities, from a plush shuttle van to a complimentary bottle of wine that awaits them upon check-in, are on the increase. But that doesn’t prevent them for shopping for a bargain.
All of these factors are coming into play as consumers are becoming more savvy about negotiating price, Spillane said. Ski vacationers are aware that mountain resort towns, including Steamboat, are overbuilt.
“It’s a rare day to literally see Steamboat booked solid,” Spillane said.
Travelers who are willing to be adaptable will get the best rates, Johnson said.
“If you’re not incredibly picky, and you’re somewhat flexible about when you travel, there are deals to be had,” he said.
Johnson said his company has contracts to manage 726 short-term vacation properties, representing about 37 percent of the local market.
To maximize rentals, they pursue a variety of marketing possibilities. In addition to working closely with Steamboat Reservations, which is owned by the Steamboat Ski and Resort Corp., Steamboat Resorts has an in-house travel agency, which can book airline travel and accommodations for vacationers. And they sell lift tickets.
“You’d better have a lot of channels of distribution,” Johnson said.
Spillane said his company is moving successfully toward consolidating management contracts for the various buildings within Storm Meadows. That process is offering greater cost efficiencies and making it easier to market the Storm Meadows name.
“When we’re all working together, there’s a lot of branding that can be done, and it’s easier to negotiate ski packages for groups,” he said. “These are things that will really work to the owners’ advantage.”
Johnson said the consolidation of vacation rentals in three or four large management companies in Steamboat doesn’t really put them in control of rental rates. That’s because Steamboat must compete with many other ski areas, as well as warm weather destinations, to book its properties.
As Steamboat Resorts seeks to maximize rentals, particularly during ski season, the combination of savvy Internet shoppers with Steamboat’s accessibility presents a challenge, Johnson said.
The same vacationer who is considering Steamboat also might be considering Vail and Aspen. If it is easier to fly into the Eagle Valley on a given weekend in February, it can affect the price Johnson’s staff can ask for a two-bedroom condo at The Lodge, for example.
As the availability of direct airline seats is gobbled up for a specific week in February, vacationers shopping on the Internet encounter less flexibility in making travel arrangements. As a result, management companies feel increasing pressure to offer lodging discounts.
Johnson can monitor the availability of airline seats into Eagle County Airport and gauge how it will affect his properties.
Property management companies have two sets of customers, Johnson pointed out — vacationers and the condo owners who belong to the homeowners association that signs the management contracts with his company.
Educating property owners about the shifting resort market is an important part of Johnson’s job. Many people purchase condominiums here based on an emotional connection to Steamboat, he said. Later on, the desire to generate a revenue stream from vacation rentals can grow in importance.
Johnson doesn’t think East West’s decision to leave Steamboat sends a negative message to the public.
Vacationers are more apt to develop loyalty to Steamboat than they are to any particular property management company, he said. And though he thinks Steamboat needs to make some strides to keep up with the convenience of other vacation destinations, the resort retains its essential appeal.
“We’re still Steamboat. We have the mountain, and we have the image,” Johnson said.
— To reach Tom Ross call 871-4205
or e-mail firstname.lastname@example.org
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