Vail Capital Partners discovered the River Run condominium complex in October, 2007 as a hidden gem on a site prime for redevelopment. It is centrally located in Eagle County, CO on the Eagle River between the two world-class resorts of Vail and Beaver Creek. At first blush we saw significant potential, so we moved quickly in our due diligence to evaluate the financial returns and various strategies for redevelopment.
In March, 2008 Vail Capital Partners acquired River Run Condominiums and immediately made several improvements on the property. The complex, which sits on 7.38 acres and was built in 1982, contains 117 condominium units which have been used as rental units since it was built.
Following acquisition, we took action immediately on three important objectives:
- Stabilized the rent roll and improved management of operating expenses to maximize profitability. As of September, 2008, 100% of the units are rented. Eighty-eight percent of the units are corporate leases.
- Secured long-term financing to stabilize the debt structure in an uncertain economic environment. At the time of the purchase of the River Run Property, financing was provided by the seller. VCP secured long term financing with State Farm Bank, F.S.B a division of State Farm Insurance for five years.
- Initiated early stage discussions (pre-annexation) with public officials from the three adjacent municipalities—Avon, Minturn and Vail. All three jurisdictions have strong reasons for annexing the River Run property besides the community benefits of additional employee housing, the additional revenue from property taxes, and real estate transfer taxes and fees.
The Vail Valley’s Significant Growth Good News for River Run
The complex was constructed in 1982 when Vail (only three miles east of the River Run site) was well known as a world-class ski destination but had yet to significantly expand beyond the surrounding base of the Vail ski mountain. In the ensuing years Vail and the areas west known today as the “Vail Valley” have experienced significant growth, substantially enhancing the redevelopment opportunity for the River Run location. For Example, Vail has eclipsed $3+ billion dollars of investment and still goes on today with construction of the Four Seasons Hotel and Ritz-Carlton Residences. Concurrently, the Town of Vail invested heavily in infrastructure to compliment the explosion of private investment.
Opportunity for a Family-Friendly, Mixed-Use Development
with “Professional” Affordable Housing
VCP is exploring a wide range of development options. Our vision for any future development is that it be family-friendly with open spaces and activities for families. Because this property is located on the Eagle River and well-known for its world class rafting and fishing, the river will be incorporated into the look and feel of the complex. VCP believes there should be easy access points and view corridors to capitalize on the beauty and serenity of the river.
Market research will be a critical component to identifying the best redevelopment strategy. We will be testing a combination of residential; affordable housing for young, local professionals; a luxury hotel; retail and commercial space in market research. VCP strongly believes housing for young professionals such as doctors, teachers, town planners and others is woefully lacking. They are the glue for a community, and we know there is a great need.
Target Audience
Affluence is a new experience for most of today’s wealthiest U.S. consumers. More than half of U.S. households considered wealthy have had that affluence less than fifteen years. This explosive growth in wealth has been a significant contributor to the growth in real estate values in high-end mountain resorts like Vail, Aspen and Jackson Hole, Wyoming. The Baby Boom generation has been the backbone of this movement to vacation homes and, the Company believes this movement will continue to be the case for at least another fifteen years. However, rapidly coming behind the boomers are Generation X individuals and families, who grew up vacationing at these high-end resorts with their, in most cases, Boomer parents and they are now looking for their first second-home. Combined, management of the Company believes Boomers and older X’ers — in other words those roughly aged 35-65 - make up the core of second home purchases in high-end resorts like Vail and Aspen. | | |
This is a large national trend, and Baby Boomers have the wherewithal to invest in a second home or property based on profitable quality of life investments and experiences. Baby Boomers have determined the course of the housing market for the last four decades. Management believes it knows a significant amount about the wants, needs, and behavior of Baby Boomers:
The younger segment has different expectations and needs. It is family oriented but at the same time looking for a place where it can escape both with and from their children. Which is why resorts like Vail and Aspen fit its needs so well… safe and secure places with many activities for children and adults.
VCP will be conducting extensive market research in 2009 and beyond to validate the assumptions regarding target audience. This research will be critically important given the current economic times and the $7 trillion dollars in equity lost in the stock market to date. Not only will the research be centered on validating our current assumptions, but it will also focus on determining any significant shifts in attitudes towards their purchase behavior for second homes.
Design Theme Options
The Company has been evaluating a wide range of possible design themes for the River Run property. Following are five examples of architectural themes that the Company will test in its quantitative market research with consumers. These represent only the initial themes being considered. If other themes emerge, then they will be examined as well.
National Parks Theme This style is sometimes referred to as “Parkitecture”. It is rustic and warm and incorporates early American and early 20th Century log and stone design. It is an appropriate choice for a mountain setting and is sometimes described as Western Arts and Crafts. It is all about a sense of leaving urban environments and contemporary constraints behind. These themes, which can be found locally in places like Bachelor Gulch’s base village, rely upon a strong use of color, texture, woodworking detail and craftsmanship.
Bavarian Theme
Bavarian style is the predominant style of Vail Village. It is based on the beauty and art of European towns such as Kittzbule, Salzburg, Regensburg, Munich, and Innsbruck. Bavarian style is classically proportioned, symmetrical, colored and aged as if it had been built over time. It is richly detailed incorporating cut stone, ironwork and public art. The style is both formal and elegant. The Bavarian theme truly exudes a sense of luxury, warmth, charm, scale and a strong appreciation for sunlight and sky.
Old European Theme
This style is similar to the “Bavarian” style but offers a more “rustic” European feel. Old World European offers great variety such as a more simple building form, dynamic roofline expression and more funkiness and casual frankness. Stenciling and public art play a large role in its public presentation, as do carvings, overhangs, and angularity. Old European allows for a variety of building scale, unusual shapes and a great sense of freedom.
Mountain Contemporary Theme
This style is often the topic of study and conversation. Large-scale mountain contemporary developments are still quite rare. They revolve around the idea of using classic mountain-oriented materials—those found in virtually every traditional western home—in a way that is unique, rich, clever and unexpected. Steel structural elements, derived from the railroad and mining, are often combined with the clean lines of smooth-milled lumber, large storefront windows and straight-cut stonewalls. The look, while not classically modern, is clearly of this millennium. The style can be seen in many smaller-scale residential projects, such as in the West Vail neighborhood, but has not yet been fully developed in the larger scale mixed-use developments of mountain towns.
Mountain Standard Theme
This style is best described as being what one might expect to find in a new mixed-use development in the mountains. There are no surprises in the use of this style, and thus perhaps less risk. It uses durable, sometimes colorful, western red cedar siding and a minimal use of stone. This style offers steep, sometimes metal roofs and offers more typical hospitality-level skier services, restaurants and shops at the pedestrian levels. The architectural expression is reserved and is what someone might expect to find in a “standard” mountain village development.
Annexation and Entitlements Process Underway
The annexation and entitlements process is in full swing. Pre-annexation steps are critically important, as they affect how VCP will negotiate the pre-annexation agreement with any of the three jurisdictions: Vail, Avon and Minturn. This process is anticipated to take one year from the date of petition for annexation, which is expected to occur mid-year 2009. VCP has put all of the right components in place to ensure a smooth process.
Research and Financial Analysis - A Competitive Advantage for VCP
The key to any successful project is to know your market, your competitors and your buyer target audiences. We have undertaken an eight-phase research, economic and financial analysis process to be able to make final decisions about each of the components of the future development. Listed below is our eight phase market research plan:
- Phase I – Research Strategy Kick-Off
- Phase II – Marketability Study and Site Assessment
- Phase III – Municipal Impact Study
- Phase IV – Financial Feasibility Analysis
- Phase V – Qualitative Concept Development and Phase VI – Quantitative Concept Confirmation
- Phase VII – Highest and Best Use Analysis and Market Study for Specific Development Phases
- Phase VIII – Ongoing Longitudinal Market Research and Analysis
Also, Vail Capital Partners has developed sophisticated financial models, has toured and is analyzing role model resorts performance and is also analyzing LEED (Leadership in Energy and Environmental Design) programs for inclusion in the development.
Summary
The Company is excited about the opportunity to develop such a rare piece of property in such a desirable location: half-way between two of the world’s great resorts: Vail and Beaver Creek. The River Run at 7.38 acres represents one of the largest parcels in the upper Vail Valley, with significant river frontage along the Eagle River totally surrounded by land owned by the federal government and the state of Colorado, the property represents a unique opportunity to create a dynamic mixed-use development unlike anything today in the Vail Valley.
