Industry Outlook: Recreational Development

Members of ULI’s Recreational Development Council discuss opportunities for repositioning and new construction in the coming years, changes in consumer preferences and demographic trends, and other factors influencing resort, vacation, and second-home destinations.

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What are the prospects for recreational development in the next year or two, both in terms of repositioning and new construction?

Christopher Kelsey: In the next couple of years, we’re going to see continued repositioning and expansion of existing projects in A locations. The better resorts will be putting more capital into deferred maintenance and upgrading amenities and programming in order to keep themselves fresh and interesting. There will be very few new projects, and those are likely going to be small infill pieces in existing high-quality destinations.

Matt Walker: There are definitely opportunities to acquire existing resort community assets and reposition them, and there are a number of underperforming assets that could use major capital investments. I am less confident that there will be large-scale ground-up development of new resort communities on greenfield sites. The upfront infrastructure costs are significant, and while second-home demand has come back in a meaningful way, in all but a very few cases it’s not enough to support development. There are limited opportunities to build condominium projects within existing assets or new stand-alone condo projects or detached single-family residential neighborhoods.

Rick Severance: Prospects for new development are in smaller enclaves rather than the large-scale master-planned communities. This mitigates the risk for developers, but it also helps consumers buy into the long-range plan because the development is not so massive with respect to buildout. Buyers like to know when the community will be complete. In terms of repositioning, especially with large master-planned second-home communities, owners are looking to use these large tracts of land in a more meaningful way. On land initially allocated for future phases, perhaps for a golf course, they can instead create a way for the consumer to age in place, forging strategic partnerships with educational or health care outposts, independent senior living or assisted living facilities, and short-term rehab facilities. These elements haven’t traditionally been part of the second-home market, but wherever people are spending their second-home time, they may be choosing to retire as well.

Richard Carr: Within the resort and recreation industry, our firm is seeing the strongest interest that we’ve seen since early 2008, both in repositioning existing assets and in new projects. The highest-end resort markets are the strongest. But four-star resorts, depending on location, have some signs of moving forward. Ultra-high-net-worth individuals are still leading the market, everywhere from Aspen [Colorado] to Squaw Valley [California] to Southampton [New York] to Cabo San Lucas [Mexico].

Ben Jenkins: It’s going to continue to get better and better for resorts in 2015. The economy in the major metro markets has been healing. The builders have bought a lot of property for the next 12 to 18 months, so they have land to build on. Once the primary markets are making sales and new homebuyers come into those markets, prices typically start to come up, and then people get more comfortable purchasing a destination property. So we’re expecting to see quite a bit more activity starting in the second quarter of this year and especially in the third and fourth quarters.

What are consumers looking for?

Jenkins: The resorts that have survived either are within a two-and-a-half- to three-hour drive of a major metro market or are in communities that have a fair measure of home products already on the ground, whether condominiums, townhouses, or detached homes. Those are the kinds of products that are going to thrive. People want to be able to use it now, and they want to be able to get there fairly easily and regularly.

Severance: Because of the economic downturn, buyers want to have confidence that developers are going to deliver what they say they’re going to—the lifestyle elements and the programming.

So as developers look at their capital outlay, they may not be waiting to have a certain level of absorption before building some of these amenities; they may build them upfront. Also, before consumers make a leap, especially in light of what’s happened to their net worth, they want to experience a community. Hence, having a good stay-and-play program is important, where the consumer can stay in the same style of home they’re considering buying.

Kelsey: Today’s buyers want to engage in intelligent consumption. They want to make sure they get good value and that they and their friends are really going to use it. They want to make sure that the developer is on sound financial footing. They’re going to have tough questions about whether or not the homeowners association dues are going to go up. They believe that they’re making a long-term investment, so they want to make sure that all of the features help them believe they are making a smart decision.

Walker: There is a big shift toward family amenities, multigenerational amenities, and more active recreational amenities. Resorts used to be able to rely solely upon golf or a beach or a lake, but what we see now are mountain-biking courses, spas, culinary institutes, and a heavy emphasis on children’s activities. All of these things help build a lifestyle that lets people imagine themselves coming back to their second home with their kids and grandkids year after year.

Carr: From a design perspective, we have continued to see a trend toward a more contemporary, modern interpretation of regional vernacular. At a mid–price point, there is a trend to build smaller units and have them share more amenities. Three or four units share a pool, for example, or a theater, or a recreation room. One project we’re involved in, instead of buying a four- or five-bedroom unit, people could buy a two- or three-bedroom unit and have access to a single-bedroom unit, which is shared in common for guests to use when they need it.

How are demographics changing, and what is the next generation of consumers interested in?

Severance: Developers have been so hyperfocused on the baby boomers, but gen Xers and millennials have very different guiding principles as to what they want from a community. In particular, gen Xers expect an element of environmental consideration. They don’t want to pay more for it, but they expect it. And that has to be layered into not only the marketing message, but the product itself. Baby boomers also have environmental concerns, but it’s not as much of a guiding force in their decision making.

Kelsey: Millennials are becoming active in the fractional ownership area, particularly the timeshare business. They tend to book late and indulge in a lot of the services. In the timeshare world, buyers now can not only purchase time in their units, but also convert unit points into experiences: they can go to the Super Bowl or the Grand Canyon instead. This is a group that isn’t sure they want to own a car because they like the convenience of Uber, so this trend makes sense in their renter culture. I do think, however, they will become buyers in the long term as they begin to have children.

Walker: Prospective buyers are becoming more demographically diverse than before. In the last cycle, our buyers were squarely baby boomers—generally 45 to 65. Now we’ve got buyers in their 30s, 40s, and 50s. I think that’s because there has been more wealth created in technology and banking and entertainment. They have younger families, and they’re more experience driven and looking for authentic cultural and recreational experiences. It’s less about the mansion in the woods and more about being able to do something that creates a great story that you can tell to your friends and your family.

Carr: There’s a lot of focus on what generation X and the millennials will want when they’re ready to purchase recreational real estate. In the hospitality area, we’ve had a number of projects that focused more on the food and beverage experience or on outdoor lifestyle and less on the traditional five-star room and amenities. We’ve often gotten rid of the tubs, simplifying them to a three-fixture bath, for example, with a focus on spaces working extremely well and being inspiring and fun. An overall authentic experience and vibe are what the next generation is after.

Jenkins: People are looking at the millennials to produce the next big boom of housing and resorts down the road. The products that offer a year-round, very active lifestyle and have some intergenerational appeal to them are going to thrive. The younger market wants to ski in the winter. They want to go mountain biking. In the summer, they want to hike and take their kids fishing.

The most successful properties through the recession were popular because they offered a lot of different things in one location for a lot of age groups. Golf will still stay a driver in certain markets, but it is less important than it used to be. Younger buyers seem to have difficulty seeing value in an amenity that takes four and a half hours to play. Can you give them six-hole rounds or create a walking course for their kids?

What other significant trends are shaping your industry?

Carr: Indoor/outdoor living is a big focus. It’s an obvious choice in warm-weather environments, but even in mountain environments it’s possible to create outdoor rooms that are covered and have ceiling heaters and collapsible glass walls that allow living spaces to engage in the outdoors. The outdoor space or terrace is a big trend even in our condominium projects, which are usually quite high-end. But even in our lower-end projects, we have implemented this trend, extending the living area into an outdoor space with a collapsible glass wall that noticeably increases the size of a fairly small unit.

Kelsey: The idea of well-being—not just wellness—is important because it speaks to the aging baby boomers. It also speaks to gen Xers, who want to be part of a community. Well-being is not just about spa and medical services; it’s also about farm-to-table food, participating in community, and volunteerism. Participating in organizations like Habitat for Humanity is one example: people might go down to Costa Rica with their families and build a house for a deserving family. The experience needs to be mutually beneficial: the volunteer is there not only because they want to do something good, but also because they want to learn something new or interact with people from a different culture or background. You’ve got to have the right mix so both sides of the equation are getting something.

Severance: Buyers are less concerned about amenities that are directly related to high capital investments for the developer. They value experiences—and they have to be authentic. Everyone talks about cooking classes and walking tours, but the experiences have to be relevant to the specific place. That’s a good thing, because freeing up capital on the front end to seed heavily amenitized developments is a challenge.

Jenkins: A lot of buyers are looking for much more utility, so in some locations the product types are changing from large custom homes to more manageable, human-scaled, high-utility family homes. Another trend that has continued is the popularity of zero-maintenance properties. People want something they can buy and not take care of when they’re not there, so condos and townhouses are coming more and more into play.

Walker: A lot of second-home buyers come from gateway cities, and they are trying to escape the traffic and the congestion. They want to get out of their cars. In most resorts and second-home communities, there’s a desire to create an active resort core that has some level of pedestrian experience, with a combination of hotels, restaurants, and spas, and retail that people enjoy. It might have a general store with a post office, a watering hole, and a coffee shop—like a little town. Of course, it’s another thing to actually program it and have it make economic sense. It’s one of the challenges that we face: how to create a sustainable village that can work for the long term.

Ron Nyren is a freelance architecture and urban planning writer based in the San Francisco Bay area.