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HomeMy WebLinkAboutagenda.council.worksession.20121211 CITY COUNCIL WORK SESSION December 11, 2012 4:00 PM, City Council Chambers MEETING AGENDA I. Lodging Study Update II. Employee Generation Study Update Page 1 of 6 MEMORANDUM TO: Mayor and City Council FROM: Jessica Garrow, Long Range Planner Chris Bendon, Community Development Director MEETING DATE: Tuesday, December 11, 5:00pm Council Chambers RE: Lodging Study Update REQUEST OF COUNCIL: Staff requests Council direction for next steps related to Council’s lodging goal. BACKGROUND: One of City Council’s Top Ten Goals is to “Complete a study on Lodging that looks at the adequacy of lodging options in Aspen and suggested areas for improvement.” As part of this effort, staff conducted a lodging study to examine our existing inventory and to understand the current state of the lodging market. This is attached as Exhibit A. The report provides an overview of the City’s role in lodging over the years, outlines Aspen’s lodging inventory, includes average occupancy and rate information, and provides a number of interviews with local lodging experts. One of the findings of this report was that over 40% of Aspen’s short-term bed base is in condominiums. Based on that information, staff contracted with Alan Richman Planning Services to conduct a detailed study of Aspen’s condominium market. This report is attached as Exhibit B. A detailed summary of findings from these reports is below. Following the existing conditions work, staff hosted a Lodging Charrette with representatives from Aspen’s lodging sector, as well as two outside consultants. The charrette asked participants to discuss the following questions related to new lodging product, reinvestment/redevelopment of existing lodges, and condominium rentals: 1. What opportunities exist? 2. What challenges exist? 3. What role, if any, should the City play? As many of the participants pointed out, the half-day charrette brought members of the lodging community together in a way that they have not been before. It was viewed as a potential jumping off point for continued work and progress in this area. A summary of comments and findings is also listed below. In addition, the two outside consultants provided written reports of their thoughts and findings following the charrette. These are attached as Exhibits C and D. FIRST PHASE REPORT: Earlier this year, the Aspen Skiing Company commissioned a study with Mountain Travel Research Program, LLC (MTRiP) to provide updated data on the lodging bed base in Aspen and Snowmass. The findings from MTRiP were included in the first phase report. P1 I. Page 2 of 6 The key takeaways from the first report, attached as Exhibit A, were related to the makeup of Aspen’s short-term rental pool. There are 2,293 units and 10,085 pillows in Aspen’s short term rental market. This represents 56% of the units and 53% of the pillows in the overall resort area. This represents a decrease in units from 2009 and an increase in pillows since 2009. The differences are likely a result of discrepancies in the 2009 reporting from individual properties, as there have not been any significant new projects or decreases in projects in that time frame. The largest sector of the Aspen lodging inventory is Hotels/Lodges, which account for 50% of the bed base (-0.17% from 2009). Condominium units account for 41% of the City total (-5% from 2009), with private homes at 6% (+31% from 2009) and bed and breakfasts at 3% (+6% from 2009). In terms of categories, the overall availability of a range of lodging types and price points continues to favor deluxe accommodations, with Deluxe pillows making up 68% and Deluxe Units making up 62% of the inventory. The Rocky Mountain Lodging Report compiles data for lodging throughout Colorado and the Rocky Mountain Region. The information includes average occupancy data as well as information on average nightly rental rates. This information was compiled for the Phase 1 Report. The seasonality of the Aspen is seen in the occupancy and room rate information over the years, with the highest occupancy and room rates seen December through March and June through August. December through March consistently command the highest average room rates, ranging from an average of $542.30 in December between 2006 and 2011 and $419.89 in March between 2006 and 2012. Compared to other Mountain Resorts and the entire state, Aspen consistently commands higher average room rates. Perhaps the most telling information in the report is from the individual interviews with members of the lodging community. Interviewees consistently stated how important special events are to attracting visitors to Aspen. They also focused on the importance of ensuring Aspen is able to attract the next generation of visitors. Several warned that while Aspen has enjoyed unparalleled loyalty in its visitors for several decades, the younger generation is less influenced by loyalty, and more driven by adventure, new experiences, new places and exploring the many choices offered around the world. Many emphasized staying true to the values that make Aspen special today, including the character of the built environment, environmental stewardship, the metropolitan feeling of arts and cultural offerings and the many recreational choices. Several were worried that locals don’t recognize that the Aspen brand is very intimidating to many people who have never been here, which can deter people from visiting. Finally, the general consensus from interviewees was that the city should have a minimal role in the actual development of a lodge, but that the city could help to provide incentives that could make a new lodge project or lodge rehabilitation more feasible. CONDOMINIUM REPORT: The Condominium Report produced by Alan Richman focuses on the regulatory and non-regulatory barriers to developing and upgrading condominiums in Aspen. P2 I. Page 3 of 6 Given that 40% of Aspen’s short-term bed base is in condominiums, staff asked Mr. Richman to explore what steps the city could take to bolster this portion of the bed base. Much of the information in the report is based on interviews with condominium and condominium lodge owners and operators. The report goes into great detail about how the land use code treats traditional lodge projects differently from residential condominiums, and how that has resulted in a lack of maintenance and upgrades in this segment of our bed base. These barriers range from zoning regulations to growth management to the multi-family replacement program. It is important to understand the difference between traditional lodging and condominiums that is outlined in our code: • A hotel or lodge unit may not be occupied for more than thirty (30) consecutive days per year by a person who has an ownership interest in the hotel or in the unit and may not be occupied by any person (owner or non-owner) for more than ninety (90) days per year. A multi-family condominium is not limited in terms of how much of the year it may be occupied by an owner or other person. Hotel units must be rented short-term, while condominiums are rented at the discretion of the owner. • A hotel or lodge unit may contain “lock-off units” whereby portions of the entire unit may be separately rented by locking the door between different rooms or combinations of rooms. On the other hand, multi-family dwelling units must have common un-pierced demising walls and cannot be separated into lock-off units. These differences prevent condominium units, even if they are rented on a short-term basis, from taking advantage of some of the height, floor area, and growth management benefits available to a traditional lodge. There are a number of condominium hotel properties in town that act as lodges, but are considered multi-family residential because of they are condominiumized. These properties do not “fit” into any zone district very well, which often means these properties are subject to additional land use reviews related to any maintenance or upkeep that a traditional lodge is not. The report suggests a number of potential next steps, many of which are highlighted by staff below in the Suggested Next Steps section of this memo. One question for City Council to keep in mind is: Do you believe the condominium short-term market is important to maintain and even bolster? If so, this is an area where the city can likely have the most impact going forward in terms of creating incentives and easing regulatory barriers. LODGING CHARRETTE: On October 23rd, the city hosted a lodging charrette at the Gant with many of Aspen’s lodging stakeholders. This was one of the first times in many years voices from all of Aspen’s lodging sectors – from developers to condominium managers to large and small hotel operators to land planners – were in the same room talking about lodging issues and what role, if any, the city should play. Participants discussed new lodging product, reinvestment/redevelopment of existing lodges, and condominium rentals. Below is a summary of comments related to the roles the City chould play moving forward. Complete notes from the P3 I. Page 4 of 6 charrette are included as Exhibit E. The reports from outside consultants from EPS and BBC are attached as Exhibits C and D. In terms of new lodging there were a number of comments that if the city wants to see more lodging that the codes should be examined and updated to encourage, incentives, and perhaps even subsidize new lodging. There was a general consensus that a free-market residential component of some kind is needed to make any brand new lodge work from a financial stand point given all of the city’s other requirements. Finally, there was consensus that lodging is the appropriate use at the base of Lift 1A, and that the city may have a role in helping create an environment where a new lodge could be successful. Some felt that improving that area would create a portal that then helps other lodges. While there was interest in seeing new lodging product, there was more support for examining ways to support our existing lodges and condominium units. One participant said the city should “enable existing lodges to thrive before focusing on new lodges.” In terms of reinvestment in existing lodges, there was a consensus that there are too many hurdles from the City in terms of fees and land use reviews. The process is complicated, unpredictable, and expensive, and the smaller lodges are often not able to afford the time or dollars it takes to go through a review process. There were some suggestions that the city could provide tax incentives or low cost loans to smaller lodges looking to upgrade. The Aspen Gems group has reformed, and participants suggested the city work with that group to determine what specific incentives and regulations would help these lodges thrive. The discussion related to condominium units focused primarily on how the land use code dis- incentivizes them. There were a number of suggestions on the city’s potential role, all involving ways to modify how the city regulates condominiums. Some felt the city should ease regulations on condominiums if a certain percentage of units were guaranteed to be in the short-term rental pool. Others felt requiring hotel-type amenities, like conference facilities and front desk services, would help encourage new condominium units to be rented on a short-term basis. Nearly all participants expressed concerns related to the multi-family replacement requirements and their impact in stifling reinvestment in condominium units. There were some general comments as well. Some felt that the city should look forward and consider which areas of town or specific properties they would be interested in seeing a new lodge or a revitalized lodge. This kind of exercise – focusing on what the city wants – could help the private sector have more certainty to bring projects forward. In general there was a consensus that the city’s regulatory structure is burdensome and prevents good projects from coming to fruition. A final thought from the group is that the city does not actually know what types of lodging is desired by our visitors because there hasn’t been any study or work on this issue. This was seen as an opportunity as the discussion moves forward. SUGGESTED NEXT STEPS: Based on the work to date, staff outlines the following suggested next steps. Staff requests Council direction on these, or other next steps Council may want to take in order to move forward on this Top Ten Goal. P4 I. Page 5 of 6 1. Examine and create a greater understanding of basic lodging economics. The charrette group, which represented most of Aspen’s lodging community, consistently expressed concern that community members, decision makers, and city staff, don’t understand the basics of lodging economics. From staff’s perspective we agree with this characterization. If one is not in the lodging field, then they’re likely not an expert in lodging economics. However, a basic understanding of what it takes to make a lodge “work” would be helpful to inform the conversation going forward. Staff suggests utilizing an outside of Aspen consultant, such as the CU Leeds School of Business, to walk through some examples of what goes in to making a new lodge and a lodge redevelopment successful, and then putting it to a “aspen reality check” with local lodging representatives. This approach was successful in the recent height study. 2. Study what lodge products our customers want. An obvious, but key, takeaway from the charrette was that as a community we don’t understand what our visitor wants in terms of lodging product. This is a role that the city can play a supporting role to Stay Aspen Snowmass, ACRA, the Aspen Skiing Company, and the Aspen Gems. Staff suggests partnering with these organizations to better understand what lodging product and amenities Aspen’s visitors are looking for. The city has budget remaining under the AACP Implementation, which could be used to assist in this effort. 3. Create a new program that better addresses hybrid condominiums/hotels. Three of Aspen’s largest hotel properties are actually hybrid models – Aspen Square, Aspen Alps, and The Gant. These properties are residential units that can be rented on a short-term basis. They are considered under the land use code as multi-family residential units, despite the fact that most of the units are in the short-term rental pool on a regular basis. A new program could better address the needs of these properties, and enable the creation of similar projects elsewhere in town. The Condominium study also highlights this as an important step if the City is interested in bolstering the existing condominium short-term rental market. As the Condominium Report details, there are significant disincentives for condominium development in the lodge zone district, where many of the short-term condominium rentals are located. A new program could include changes to these regulations to encourage condominium redevelopment/reinvestment with some mechanism to ensure units remain in the short-term market. These incentives could be limited to projects that bolster the short-term bed base. 4. Explore implementing development assistance for lodging refurbishment. One option Council may want to consider is assisting existing lodges in upgrading and updating their product. Development assistance could include providing expert analysis to existing lodge properties so they know what refurbishment options are available, looking at the fees associated with development applications and deciding if waivers for certain fees or mitigation requirements should be implemented, or the creation of a drect subsidy program. Staff does not have a specific recommendation in mind at this point, but can explore the issue if Council is interested. P5 I. Page 6 of 6 ATTACHMENTS: EXHIBIT A: Lodging Study Phase One Report EXHIBIT B: Condominium Report EXHIBIT C: EPS Charrette Report EXHIBIT D: BBC Charrette Report Exhibit E: Charrette Notes P6 I. Lodging Study - Phase 1 Final Report 1August 2012 Aspen’s Lodging Sector An Analysis of Existing Conditions One of City Council’s Top Ten Goals is to “examine the desirability and sustainability of preserving existing lodging and producing more lodging in Aspen.” This study represents the first phase of this effort. It is intended to provide a “big picture” overview of Aspen’s lodging sector. The study is divided into eight sections: • History of Aspen’s Lodging Policies - pg 2 This section provides an overview of the City’s role in lodging since the 1970s. • 2006 Analysis of Aspen’s Lodging Profile - pg 7 This section provides a brief summary of a detailed 2006 report on the lodging sector, and possible the role government could play in providing moderate lodging. • 2012 Analysis of Aspen’s Lodging Profile - pg 8 This section provides a brief summary of a 2012 lodging inventory report conducted by MTRiP for Aspen Skiing Company. • Lodging Occupancy and Rate Analysis - pg 10 This section outlines basic demand information for lodges. It covers lodging ranging from economy to luxury. • Lodging in the 2012 Aspen Area Community Plan - pg 12 This section outlines the public feedback that was received as part of the 2012 AACP update, as well as an overview of the lodging policies contained in the plan. • Interviews with Aspen’s Lodging Sector - pg 14 This section provides detailed interviews with key players in Aspen’s lodging sector. Interviews were conducted with lodge managers, condominium and single-family rental agencies, and lodge developers. • Aspen’s Lodging Inventory, 2012 - pg 34 This section lists Aspen’s current lodging inventory based on conversations with Aspen area lodges. Condominium and single-family home rentals are not included in this inventory. • Interviews with Aspen’s Short Term Rental Managers, 2012 - pg 36 This section outlines information related to Aspen’s condominium and single-family home rentals. City of Aspen Community Development Department P7 I. 2 Lodging Study - Phase 1 Final Report August 2012 History of Aspen’s Lodging Policies City government has played a wide variety of roles in Aspen’s lodging sector over the years, ranging from the philosopher-sociologist to the market economist – and at times, financial supporter. One of the earliest statements about lodging came in the 1966 Aspen Area General Plan, which defined the purpose of the Accommodations/ Recreation Zone District as “ … encouraging varied and interesting development as a means of perpetuating Aspen’s prominence as a quality resort….” This perspective reflected a belief that local government should treat lodging as infrastructure for the local economy. Without a solid lodging base, a resort is not a resort – and every other sector of the economy suffers. Over the years, this viewpoint meant sometimes giving lodge development a break from Aspen’s rigorous regulations and mitigation requirements. On the other hand, growth management advocates have supported annual development limits and tough mitigation requirements on lodging, just as they would on any other kind of private sector development. These different positions have been debated through the years – often favoring lodging during economic slumps, and favoring stronger growth restrictions during boom periods. The philosophical side of the lodging debate emerged in the Aspen/ Pitkin County Growth Management Policy Plan of 1977: “In short, we have a responsibility to vacationing, working Americans who hold the vision of one or two weeks a year in a quality Colorado mountain environment … (rather than) a setting for the fortunate few who are wealthy enough ...” In other words, working Americans are entitled to enjoy the public lands surrounding Aspen, and high costs shouldn’t act as a barrier. The other side of this argument has been to let the market decide what kind of lodging is built, how much it costs and what demographic is targeted. This viewpoint often takes note that a destination resort is expensive by definition, due to high land and travel costs. Early Growth Controls on Lodging Beginning in 1977, the scoring of development applications under the Growth Management Quota System (GMQS) reflects community priorities for lodging development. For example, the 1977 point system for lodging development valued the physical compatibility of the proposed building with the neighborhood (3 pts.) and maximizing public views of surrounding scenic areas (3 pts.) just as highly as “Services Provided for Guests” (6 pts.), which included the “spaciousness and quality” of lobbies, restaurants, conference facilities, proximity to skiing and “overall tourist appeal.” The political tension between lodging-as-resort-infrastructure and lodging-as-creating-negative-growth-impacts is also found in the 1977 GMQS point system: Points were awarded for “reduction of tourist rental space below maximum allowable (square footage).” The 1977 Growth Management Plan. P8 I. Lodging Study - Phase 1 Final Report 3August 2012 In addition, affordable housing for lodging projects had to be provided on-site, potentially creating conflict with the emphasis on limiting mass and scale, and physical compatibility with the neighborhood. As the national economy suffered, the Lodge at Aspen (26 rooms) was the only lodging development to apply for GMQS approval between 1977 and 1981. The City commissioned a lodging study in 1981, which concluded that “most of the lodging available today was built many years ago and consequently do not reflect current standards for maintaining a premier resort classification.” The report also found that a mid-1970s downzoning “resulted in severe limitations for their opportunity to expand and modernize” in some neighborhoods, including the Shadow Mountain area. The report claimed the City had lost about 4% of its lodging base each year during the 1970s. Loosening Regulations & Lodging as Infrastructure City Council responded in July 1982, by increasing the annual lodging allotment from 18 to 35 units. A month later, Council stopped awarding GMQS points for smaller lodges, removed the mandate for on-site affordable housing and increased the percentage of points awarded for guest amenities from 10% to 20%. In August 1983, Council created a Lodge Preservation Overlay Zone, making it easier for dozens of older lodges in areas such as Shadow Mountain to renovate and expand. At the same time, Council awarded new GMQS points for “rehabilitation and reconstruction,” and set aside a quota of 10 lodge units per year for development in the new Overlay Zone. Between 1982 and 1987, many lodges underwent renovations, including Independence Square, Snowflake, Aspen Club Lodge, Endeavor Lodge, Shadow Mountain Lodge, the Inn at Aspen, Red Roof and the Prospector Lodge. Four lodges added units between 1982 and 1987: The Aspen (+3), Hotel Lenado (+4), the Sardy House (+21) and the Jerome Hotel (+67). The Aspen Mountain Lodge project essentially replaced the Aspen Inn and Blue Spruce, and The Little Nell (92 units) opened in 1989. In 1987, the City Council stepped squarely into the role of financial supporter for lodging, by establishing the Aspen Lodge Area Special Improvement District. Council authorized $5.4 million to pave streets, install storm drainage, sidewalks, landscaping, streetlights etc., with the City picking up the large majority of the bill. The public works project was focused on neighborhoods featuring small lodges and condos, including the Shadow Mountain neighborhood, and from Spring Street to the Roaring Fork River. Ritz-Carlton as Symbol: The Upscale Trend As the 1980s wound down, the Aspen area was experiencing a whole new level of popularity and celebrity. Home prices were increasing dramatically, many locals were selling their modest houses and the percentage of commuting workers jumped from 40% to 55% between 1987 and 1991. Hotel Lenado, one of the hotels redveloped in the 1980s and taking advantage of the zoning changesof the time. P9 I. 4 Lodging Study - Phase 1 Final Report August 2012 During that same period, the proposal for a massive Ritz-Carlton Hotel was being hotly debated, and was slowly making its ways through the City’s review process. Council approved non-binding Resolution No. 29 in 1988, setting the size at 294 units and 305,000 square feet. In July 1989, City Council responded to growth management advocates by cutting the annual quota for free market residential units from 39 to 20, and decreasing the lodging quota from 45 to 22. In February 1990, a much-debated City ballot election on the Ritz- Carlton was a snapshot in time of political feeling about lodging: • Option A would approve the 294-unit Ritz-Carlton Hotel. • Option B would reduce the size of the hotel by 60,413 square feet (about 20%), reduced the height and required much more employee housing. Sixty percent chose Option A, with 1,561 in favor and 1,059 opposed. The approval of the Ritz-Carlton symbolized a distinct trend away from economy or moderate rate hotels, and towards more deluxe accommodations. The Ritz partially met its mitigation requirements by converting the 43-unit Alpina Haus Lodge and the 14-unit Copper Horse Lodge into affordable housing. In the late 1990s, the economy/moderate rate Grand Aspen Hotel was demolished to make way for the deluxe Grand Hyatt. Perhaps in response to the trend, the 1993 Aspen Area Community Plan (AACP) emphasized the importance of small lodges. “Small lodges immediately set the stage for the guest experience in Aspen,” according to the AACP Growth Action Plan. “These lodges promote a sense of scale and feel that provide the visitor with a transition into the uniqueness of Aspen.” The 1993 AACP called for lowering mitigation costs for small lodges, but it turned out to be a losing battle. Throughout the 1990s, older lodges were converted either to free market homes or affordable housing, including, to name a few: • The 20-unit Fireside Lodge converted to townhomes. • The 22-unit Bell Mountain Lodge converted to five free market homes and five affordable units. • The 11-unit Alpine Lodge converted to four free market homes and 10 affordable units. • The Aspen Country Inn was converted entirely to affordable housing All told, the number of “Economy” lodge pillows dropped from 1,012 to 704 during the 1990s, a 31% drop. By 1998, the percentage of “Economy” lodge pillows had dropped to a mere 12% of the total. Oddly, the 2000 Aspen Area Community Plan barely touched on the subject of lodging. The Economic Sustainability chapter called for “a lively, small-scale downtown with …a varied choice of accommodations, including small lodges.” In winter, taxable lodging sales eroded significantly between 1997 and 2003, a pattern linked to a decline in skier visits and a slowdown in travel after 9/11. Winter lodging rebounded after 2003, along with the national economy. The Ritz-Carlton, now the St. Regis Hotel. P10 I. Lodging Study - Phase 1 Final Report 5August 2012 While Aspen’s lodging inventory continued to shrink (a 27% decline from 1994 to 2007), it was the “Economy” (-79%) and “Moderate” (-47%) lodges that were disappearing the fastest. The decrease was smaller for “Deluxe” lodge” (-7%). Despite the declining base, taxable lodging sales jumped 49% from 2003 to 2007, reflecting an estimated 40% increase in average prices. It was no great surprise that new lodges approved during this boom period featured large rooms and deluxe amenities, including 26 units at the Residences at Little Nell, 21 units at The Chart House and 18 at the Dancing Bear. City Tries to Re-Balance the Lodging Inventory While a few luxury lodges were being approved in the 2000s, city government was launching an effort to replenish the overall inventory, and was also trying to encourage the return of so-called “moderate” lodges. In its 2002 report, the Economic Sustainability Committee made the deteriorating lodging base its “#1 Issue,” stating: “Aspen has a deteriorating lodging and tourist facilities inventory. This includes small lodges and condominiums that are placed in the rental pool. Not only has the number of available rooms decreased greatly, but also remaining facilities are not perceived by the visitor as offering appropriate value for their pricing. Lodging owners and potential developers do not perceive a sufficient return on investment to improve existing facilities and develop new ones.” At the same time, the Infill Advisory Committee was drafting code changes to encourage more downtown area development, including lodging. In 2005, City Council approved the Lodge Incentive Program, encouraging the development of lodging with rooms that averaged no more than 500 square-feet – relatively small compared to recent deluxe lodge approvals. The Lodge Incentive Program cut the housing mitigation rate in half, and allowed the development of free market residential condos on 25% of the development’s total floor area (also at half the usual mitigation rate), to make the overall development financially viable. Also in 2005, the Limelite Lodge applied to demolish its 60-year- old facility next to Wagner Park, along with the Snowflake Inn next door, proposing to replace 115 rooms with 125 rooms in one larger new building. The development application argued that “Preserving and expanding mid-priced lodges such as the Limelite will allow the community to provide accommodations for a ‘diverse visitor population,’ as emphasized in the (2000) AACP.” Along similar lines, the application quoted the AACP Vision for the Aspen Area; “Our nature has been consciously inclusive and has abhorred exclusivity …” In addition, the Limelite argued that mid-priced lodges are a “staging area for supporting personnel and participants … in the special events that are a vital element of the local economy.” (The point was made following the recent departure of the HBO Comedy Festival, which publicly blamed the lack of affordable lodging for its relocation to Las Vegas.) P11 I. 6 Lodging Study - Phase 1 Final Report August 2012 The Limelite proposal was in the form of a PUD because it proposed to use 40% of total floor area to build condos (more than the 25% that code changes allowed). Lodge incentive code changes from 2005 also allowed for greater height and massing in the Lodge Zone District, and the large Limelite building drew many critics, but Council approved the project. In 2007, Council adjusted the Lodge Incentive Program, creating a sliding scale: As room size grew smaller, the ratio of total floor area for free market condos increased and affordable housing mitigation was reduced. Lodge projects with room sizes of 300 square feet or less would have to mitigate only 10% of employees generated, and could use 60% of total floor area for condos. No lodge projects have since applied for the incentives. Current Status As part of the 2008 State of the Aspen Area Report, a build-out analysis showed that zoning could allow for about 330,000 square feet more lodging, with the most potential in the Lift 1A neighborhood. In November 2011, City Council approved a lodging proposal at in the Lift 1A neighborhood, including 22 lodging units with a room configuration allowing them to be broken down into 84 units averaging 524 square feet. Although technically eligible for reduced housing mitigation (60% to 40%, due to a room size between 500 and 600 square feet), the developer proposed 100% housing mitigation for the lodging, five condos and 6,000 square feet of commercial space. At the same time, former lodges continue to convert to other uses, the most recent being the Boomerang Lodge, which received approval to convert its existing rooms and build an expansion, all as affordable housing. The 2012 AACP calls for “replenishing” the lodging base, while seeking to balance the inventory by encouraging a wide range of product types. Aside from the Lift 1A area, the greatest potential for a new lodging development is at Buttermilk Ski Area, which is under Pitkin County jurisdiction. The former L’Auberge d’Aspen Hotel. The property is approved for a redevelopment that does not include lodging. P12 I. Lodging Study - Phase 1 Final Report 7August 2012 2006 Analysis of Aspen’s Lodging Profile As part of the 2006-’07 moratorium, the Aspen City Council hired Boulder-based hotel consultant HVS International to analyze Aspen’s lodging profile, to address concerns including “the lack of moderately priced hotels within the city … ” and to explore what role, if any, the public sector should play in lodging. HVS stated that “public involvement in hotel projects is becoming increasingly common, as … limitations on the availability of capital for new hotel investment limits the feasibility of conventional financing.” The report stated that most local government involvement in new hotels is motivated by “the economic impact of group events and the spending of visitors attracted,” while the City of Aspen’s motivation is “to induce more affordable lodging opportunities for prospective visitors.” Among HVS’ recommendations were, “Publicly owned, funded or subsidized focused-service hotels … more moderately priced than luxury hotels, offering limited food and beverage facilities.” Council asked HVS to generate a financial feasibility report for an “example” hotel in the City of Aspen. HVS found that for a 103- room hotel on 1.4 acres, the cost of land and development would “far exceed the economic value of the hotel,” based on projected revenues. HVS said either the land costs would have to be subsidized, or a profitable “residential component” would have to be included to make the project feasible. Council had already adopted free market residential incentives in 2005, a year before the HVS report. The new code allowed 25% of the total floor area of a development to be developed as condos, with the other 75% featuring a lodge with an average room size of 500 square feet or less. This 25% allowance was essentially a “guesstimate,” and Council later approved the Limelite Lodge application with 40% of the total floor area to be developed as condos to make the rest of the hotel financially feasible. After the 2006 HVS report estimated that moderate lodges averaged room sizes between 300-400 square feet, Council adopted a sliding scale in 2007: Lodges averaging 500 square feet could use 40% of total floor area for condos; lodges averaging 400 square feet or less could use 50% of total floor area for condos; and lodges averaging 300 square feet or less could use 60%. Although this language has been in the land use code since 2007, no applications have been filed to use the incentive. The HVS report concluded that a moderate hotel could be developed in the City of Aspen either by allowing a substantial free market component, or if the land was donated by the City or subsidized in some substantial way. P13 I. 8 Lodging Study - Phase 1 Final Report August 2012 2012 Analysis of Aspen’s Lodging Profile In 2012 the Aspen Skiing Company commissioned a study with Mountain Travel Research Program, LLC (MTRiP) to provide updated data on the lodging bed base in Aspen and Snowmass. MRTiP conducted a benchmark study in 2009, and the 2012 study represents an update to that work. The 2012 report outlines unit and pillow information for traditional lodges as well as for rentals within condominiums and private homes. A copy of the full MTRiP report is available on www.AspenPitkin.com. Below is a summary of the report with information specific to Aspen. According to the report, there are 2,293 units and 10,085 pillows in Aspen’s short term rental market. This represents 56% of the units and 53% of the pillows in the overall resort area. In addition, 88% of the fractional units in the resort area are located in Aspen (300 units and 1,688 pillows). The largest sector of the Aspen lodging inventory is Hotels/Lodges, which account for 50% of the bed base (-0.17% from 2009). Condominium units account for 41% of the City total (-5% from 2009), with private homes at 6% (+31% from 2009) and bed and breakfasts at 3% (+6% from 2009). Within the above categories, 8% (300) of the units are fractional ownership properties, a -4.75% change from 2009. In terms of pillows, the numbers closely mirror the changes in Units, with some exceptions. The number of pillows in Hotels/Lodges and Condominiums increased while the number of units decreased. This is likely due to discrepancies in the 2009 reporting from individual properties. Aspen - Units By Type Comparison Aspen - Pillows By Type Comparison 2009 2012 % change 2009 2012 % change Hotel/ Lodge 1,160 1,158 -0.17%3,308 3,506 5.99% Condo Property 976 932 -4.51%4,991 5,077 1.72% Private Home 100 131 31.00%911 1,304 43.14% B&B 68 72 5.88%175 198 13.14% All 2,304 2,293 -0.48%9,385 10,085 7.46% 2012 MTRiP Aspen Snowmass Transient Lodging Inventory Study, as of July 1, 2012 P14 I. Lodging Study - Phase 1 Final Report 9August 2012 Rental of single-family homes (5% of total bed base) within the City of Aspen increased 30% from 2009. This may be partially attributed to changes in economic conditions, homeowners interested in realizing income from their properties, changes to the City’s Short Term Lodging regulations, and an increase in reporting. The study shows that 95% of the homes available for rent are classified as deluxe accommodations, and the remaining 5% are classified as moderate. While economic conditions between 2009 and 2012 may have caused a shift in the rating of some units from deluxe to moderate or moderate to economy, the overall availability of a range of lodging types and price points continues to favor deluxe accommodations, with Deluxe pillows making up 68% and Deluxe Units making up 62% of the inventory. In Aspen both Moderate Category units and pillows decreased (-37% for units and -27% for pillows), while Economy Category units and pillows increased (+59% for units and +117% for pillows). Units By Rating Pillows By Rating Deluxe Moderate Economy All Deluxe Moderate Economy All Hotel/ Lodge 579 389 190 1,158 1,659 1,160 687 3,506 Condo Property 719 197 16 932 3,954 1,034 89 5,077 Private Home 124 7 0 131 1,243 61 0 1,304 B&B 1 61 10 72 20 152 26 198 All 1,423 654 216 2,293 6,876 2,407 802 10,085 2012 MTRiP Aspen Snowmass Transient Lodging Inventory Study, as of July 1, 2012 P15 I. 10 Lodging Study - Phase 1 Final Report August 2012 Lodging Occupancy and Rate Analysis The Rocky Mountain Lodging Report compiles data for lodging throughout Colorado and the Rocky Mountain Region. The information includes average occupancy data as well as information on average nightly rental rates. The report does not include every hotel or lodge in Colorado or Aspen, but provides good trend information. The properties reporting into their data tracking system range from small to large hotels/lodges, and span the economy – moderate – deluxe categories. Information from the Rocky Mountain Lodging Report was used as part of the 2006 HVS Lodging Study because it “provides a good indication of aggregate growth or decline in existing supply and demand” in the lodging sector. The charts below outline the Occupancy Percentage, Average Room Rates, and Revenue per Available Room (RevPAR) for Aspen, Colorado Mountain Resorts, and the State between 2004 and May, 2012. The seasonality of the Aspen is seen in the occupancy and room rate information over the years, with the highest occupancy and room rates seen December through March and June through August. December through March consistently command the highest average room rates, ranging from an average of $542.30 in December between 2006 and 2011 and $419.89 in March between 2006 and 2012. Compared to other Mountain Resorts and the entire state, Aspen consistently commands higher average room rates. $0.00 $50.00 $100.00 $150.00 $200.00 $250.00 $300.00 $350.00 $400.00 2004 2005 2006 2007 2008 2009 2010 2011 2012 (Thru May) Average Room Rate Comparison ASPEN TOTAL RESORTS TOTAL COLORADO $0.00 $100.00 $200.00 $300.00 $400.00 $500.00 $600.00 $700.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Aspen Average Room Rate Aspen Average Room Rate 2006 2007 2008 2009 2010 2011 2012 All Charts in this section are based on data from Rocky Mountain Lodging Report. P16 I. Lodging Study - Phase 1 Final Report 11August 2012 In terms of occupancy, Aspen, and the entire state, saw a significant decline in occupancy in 2009 and 2010. Aspen consistently outperformed other Mountain Resorts, but fell behind occupancy averages for the state as a whole during that time period. There appears to be a continued upward trend in occupancy in Aspen and Mountain Reports in 2012. RevPAR provides an indication of how room revenue is being maximized. It is calculated by multiplying the Average Room Rate by Occupancy Percentage. Aspen continues to outpace Mountain Resorts and the State as a whole in this lodging metric. 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Aspen Occupancy Percentage Aspen Occupancy Percentage 2006 2007 2008 2009 2010 2011 2012 40.00% 45.00% 50.00% 55.00% 60.00% 65.00% 70.00% 2004 2005 2006 2007 2008 2009 2010 2011 2012 (Thru May) Occupancy Percentage Comparison ASPEN TOTAL RESORTS TOTAL COLORADO $0.00 $50.00 $100.00 $150.00 $200.00 $250.00 $300.00 2004 2005 2006 2007 2008 2009 2010 2011 2012 (Thru May) Revenue Per Room (RevPAR) Comparison ASPEN TOTAL RESORTS TOTAL COLORADO P17 I. 12 Lodging Study - Phase 1 Final Report August 2012 Lodging in the 2012 Aspen Area Community Plan As part of the 2012 Aspen Area Community Plan (AACP), the city conducted extensive public outreach to hear how the community felt about growth and development issues. The public outreach process included a number of questions related to lodging, and the issue of lodging consistently rated high in terms of importance to the public. There was consistently high opposition to building more large, deluxe- style lodging units, and fairly strong support for focusing on additional moderate or economy lodges. The public feedback came after the 2008 State of the Aspen Area Report found the lodging based had declined by 27% since the mid- 1990s, but that lodging rated moderate and economy had declined even more steeply. A Population Segments Chart, which estimated population changes between 1990 and 2008, estimated that the average number of people staying in lodging during a given day in peak season declined from 6,548 in 2000 to 5,778 in 2008. At the same time, the number of people staying in the area’s growing inventory of second homes climbed from, 8,563 to 9,427. AACP Feedback Summary Respondents to the 2010 Instant Keypad Voting Sessions in ranked “smaller lodging units” as their second choice in terms of the type of development they want “to encourage.” In terms of the type of development they most wanted “to discourage,” the top choice was “larger lodging units.” When asked a similar question in 2009, respondents stated they “would place the most growth restrictions” on larger lodging units and “would place the fewest restrictions” on smaller lodging units. (2009 Instant Keypad Session) On the same topic, respondents were even more emphatic when the question included some well-known slang terminology for the Aspen Area: Sixty-one percent wanted to focus on lodging for “the next generation of ski bums,” versus 15% who wanted to focus on “deluxe” lodging for our “world class” resort. (2009 Instant Keypad Session) Area residents felt strongly about encouraging a diverse visitor population - 75% of Aspen area voters and 66% of homeowners were willing to support government “incentives for small to moderate lodges.” (2008 Community Survey) In the 2011 Community Survey, the “most beneficial” type of development was identified as “essential businesses,” with “diverse, balanced lodging” coming in second. In a related question about replenishing lost lodging inventory, the top choice was to replenish inventory without a specific focus on type (35.5%) – but coming in a close second (31%) was to replenish inventory with a specific focus on moderate and economy lodging. However, the gap was wider in the 2010 Instant Keypad Session, when 51% favored replenishing lodging inventory with no particular focus on type, compared to 28% who favored replenish inventory with a focus on moderate to economy lodging. P18 I. Lodging Study - Phase 1 Final Report 13August 2012 In the 2011 Community Survey, smaller lodging units dropped from second to sixth in terms of the type of development people wanted to encourage – but larger lodging units remained at the top in terms of development people most wanted to discourage. If there was a community value that appeared to work in opposition to replenishing the lodging base, it was preserving small town character. Asked why they might keep lodging development modest in size, the most popular answers were “small town character” and “mountain views.” (2011 Community Survey) The top answer to a very similar question at the 2010 Instant Keypad Session was “small town character” at 38% -- but the second most popular response was “don’t restrict lodging size” at 31%. AACP Lodging Policies During the drafting of the AACP, many discussions focused on the feasibility of producing moderate lodging and what role the city could play. Because the AACP is an aspirational document, focused on establishing a vision for the future, the AACP itself does not address these issues. Instead, it outlines a vision of a thriving, diverse visitor base. The Philosophy of “The Lodging Sector” contained in the 2012 AACP states: “The formulation of a strategy that replenishes the lodging base and favors a diverse lodging inventory is important to the long- term sustainability of a visitor-based economy that purposefully seeks to attract a diverse visitor base. Without a diversity of lodging options, we limit the ability of future generations of visitors to experience the Aspen Area and its surrounding public lands. Many of today’s longtime locals first experienced Aspen thanks to “entry-level” lodging. The concept of providing equal access to Aspen has been present in long range plans dating back to 1976. We seek a broader demographic in order to sustain a diverse, visitor-based economy. Finally, we recognize that a diverse lodging inventory ensures there are places to stay for those who produce and participate in many of our critically important special events, workshops and other activities.” The top two lodging policies in the 2012 AACP are “Minimize the further loss of lodging inventory,” and “Replenish the declining lodging base with an emphasis on a balanced inventory and diverse price- points.” Regarding the scale of new development, the 2012 AACP includes a policy saying new lodging should be “compatible and appropriate within the context of the neighborhood.” P19 I. 14 Lodging Study - Phase 1 Final Report August 2012 Interviews with Aspen’s Lodging Sector The following is a distillation of the answers from interviews with lodging managers, describing repeated themes, ideas and suggestions. Full responses begin on page 17. 1. For many years, StayAspenSnowmass and ACRA asked lodges to identify themselves as deluxe, moderate or economy. Which category does your lodge fall under? The lodges represented in this feedback effort ranged from economy to moderate and deluxe, with several including two to three categories within the same lodge. For older structures that don’t meet the expectations of modern travelers, high levels of service can place them in the deluxe category. In general, economy lodges tend to be further from downtown, while deluxe tend to be closest to the mountain. Although the economy/moderate/deluxe categories are not industry terms, and some lodges might choose a category for marketing purposes, most felt the categories were generally accurate. 2. Can you describe your average customer, or the different kinds of clientele that stay with you? Is there a certain type of room, or size of room that people like most? There are many niches in the Aspen lodging market. Some focus on Baby Boomer skiing families, some on beginner skiing families, others focus on couples and/or single professionals attending conferences or consulting. Still others tend to cater to the support personnel and participants of special events. In the deluxe category, the share of the foreign market (South America, Australia) appears to be growing. The only hostel in town (St. Moritz) appears to be less in demand in recent years. The condominium rental market ranges from economy to luxury. There is no single type of visitor, so a successful lodge is about meeting expectations in their niche. Families and those staying for longer periods (i.e. the Music Festival, or extended skiing vacations) tend to demand larger room sizes to accommodate kids, to stow gear and to allow for work-space. In general, the lodging industry has retreated from the 1,000 to 3,500 square foot room size that was the trend before 2008. Smarter, modern design is aiming to accommodate needs from roughly 400 to 700 square feet. Everyone emphasizes the importance of service, but especially those working with outdated structures, such as the aging condo inventory. Many condos have eight-foot ceilings, far lower than what modern travelers expect. Clients of the condominium and single-family rental pool tend to stay longer than those in traditional lodges, staying a few weeks or months as opposed to 3-7 days, which is typical in lodges.. 3. Are there amenities that you find people demand more and more? If there is one thing you could add to your lodge, what would it be? The top demand is technological services. Free Wi-Fi is a must, along with I-Pod docking and enough outlets to handle everyone’s needs: high speed and bandwidth are key as well. Pools and exercise rooms are standard. Transportation is also key, with more lodges offering bicycle fleets as well as shuttle and car service. Community Development Staff conducted interviews with local lodging experts, ranging from developers to operators. The interviews are intended to highlight the various opinions and experiences within Aspen’s lodging sector. Interview were conducted with large and small hotels as well as condominium rental agencies. The hotels and condominiums reporesented by the interviewees range from economy to luxury. P20 I. Lodging Study - Phase 1 Final Report 15August 2012 Almost everyone emphasized service: People traveling to a destination resort place a very high value on their time. Service means not just having a stack of brochures, but talking with customers about the many choices of events and recreation options – including tips about having a genuine Aspen “experience.” 4. What is your lodge’s strategy for success? What are the ingredients that make up long-term viability for you? Trends in the lodging industry change quickly: many said the key is continually evolving with the interests and demands of the customers. Phrases used by respondents included “staying fresh,” “building relationships,” “providing choices,” “creating memories” and “keeping up with technology.” 5. How important are special events? What special events bring you the highest occupancy? Is there a type of special event that you think would fill your lodge? Generally, the participants named Food & Wine and the Music Festival as most important, followed closely by the X-Games. Most also described the constellation of smaller events (Aspen Eco Fest, Aspen Institute Socrates Dinner etc.) as creating an atmosphere of choices that’s important to the modern traveler – and reinforcing the Aspen brand. Many wanted to see at least a modest expansion of the tourist season – into the first two weeks of December and the last week of August. Most were satisfied with the level of collaboration that’s critical to producing specials events. Many said events should be consistent with Aspen’s character. While all resorts have special events, Aspen’s exceedingly strong arts and cultural institutions bring a level of quality that few other resorts can match. 6. How will Aspen as a destination stay relevant, attractive and compelling for future generations? Are you seeing changes in demand for types of rooms, amenities? What do you think visitors will be looking for in the future? Most respondents talked about the importance of Aspen being compelling to young people, with a sense of vitality in the downtown, including things like jugglers on the pedestrian malls. Changes that lodge managers liked included informal public gathering places, including the increase in outdoor dining, tables and chairs around the pedestrian malls, the upgrade of the Durant Street ice rink, the Saturday Market. Managers wanted more of the same. Among the suggestions were more colorful vendors (i.e. jugglers etc.); a revival of the (FAC) Friday Afternoon Club (music and kegs outside the Jerome); more Music Students on the malls (as in hiring them); nightclubs for young people (the loss of Cooper St. Pier was a negative); and improving the way we leverage the Aspen Idea. Many emphasized staying true to the values that make Aspen special today, including the character of the built environment, environmental stewardship, the metropolitan feeling of arts and cultural offerings and the many recreational choices. Several were worried that locals don’t recognize that the Aspen brand is very intimidating to many people who have never been here, which can deter people from visiting. (There seemed to be no easy answer to that problem.) Most applauded the Skiing Company’s efforts at attracting young people, P21 I. 16 Lodging Study - Phase 1 Final Report August 2012 dating back to opening Aspen Mountain to snowboarders in the late 1990s, and the X-Games. 7. Many of today’s year-round residents stayed at a relatively affordable lodge when they first came to town, grew to love Aspen and decided to live here. Today, public feedback tells us there is strong support for “entry-level” lodging. With a steady decline in moderate and economy lodging since the mid-1990s, there is a community aspiration to replenish those types of lodges. What do you think about this? Do you agree? Disagree? Responses were mixed to this question: Many agreed that the aging of the Baby Boomer generation is resulting in fewer visits, and attracting the next generation is critical. Some said a diverse visitor base is good for the town in general. Others said the young seasonal workforce will become future guests, adding that affordable seasonal housing has helped build for the future in that sense – though many employees commute from cheaper housing markets downvalley. Managers of economy properties said they continue to offer entry- level lodging, one adding that Front Range and West Slope residents are a market for lower-end lodging that could be tapped. Economy lodges were also identified as essential for support personnel and participants of special events to stay while in town. Non-economy lodge managers said the erosion of the lower-end is due to several factors, including inability to market aggressively; too few rooms to achieve critical mass economically; difficulty in matching service levels offered by others; the competition when upper-end lodges aggressively lower off-season rates; and outdated buildings and facilities. Many said that the reality is that people must pay for the quality of the amenities that the Aspen area offers, including the natural environment, scenic views, multiple recreational opportunities, high-quality arts and cultural offerings, the genuine historic built environment and even the genuine and vital local community. Several would rely on the market to find a balance in lodging inventory. Several warned that while Aspen has enjoyed unparalleled loyalty in its visitors for several decades, the younger generation is less influenced by loyalty, and more driven by adventure, new experiences, new places and exploring the many choices offered around the world. Several again cited the “intimidation factor” as a barrier that should be addressed. 8. Do you think the growth management incentive program for small sized-rooms is viable? Respondents said the program was either flawed, not widely applicable or could be improved to be more effective. 9. There has been talk of the city partnering with a developer to build a moderate/economy lodge. Do you think this is viable? Do you think it’s a good idea? Respondents were generally unenthusiastic. Such a partnership was described as possible if the City “put real value on the table,” and if such a lodge were “in off-beat locations.” P22 I. Lodging Study - Phase 1 Final Report 17August 2012 Interviews with Aspen’s Lodging Sector Full Responses by Question 1. For many years, StayAspenSnowmass and ACRA asked lodges to identify themselves as deluxe, moderate or economy. Which category does your lodge fall under? Michael Behrendt / St. Moritz We have very different types of accommodations, from a 900 square foot condo to the 2nd floor hotel rooms and the 3rd floor hostel. We have people from millionaires to flat-busted. Chuck Frias / Frias Properties We provide economy to luxury rentals. Donald Lee / The Gant We are deluxe, but sell in all three categories. Our premier units have been completely remodeled at very high levels and include king size beds and washer/dryers among other things to achieve such a rating. Standard units don’t have such amenities and weren’t remodeled to the same extent and therefore command lower rates and occupancies. It varies, but generally our clientele makes $150,000 per year and up. Paul Lovelace / Inn at Aspen The Inn at Aspen is comprised of privately-owned condos, often used by owners and otherwise leased as lodge units. We are an economy hotel partly because of the age of the facility and the location – everyone wants to stay in town. But we’re looking to move into the moderate category -- half of the rooms are now under renovation. We want to perform well at the economy level, and break into the next level as best we can. Rick Moore / The Innsbruck After the renovation in 2007, The Innsbruck became a fractional property, selling 1/12 interests. Although we don’t have a kitchen, all the units have kitchens and washer-dryers. I consider us deluxe. Skiing Company / The Little Nell + The Limelight The Little Nell is luxury, the Limelight is moderate. Stan Clauson / Clauson Associates The practice of lodges choosing the category they fall into (economy/ moderate/deluxe) may have as much to do with their own marketing and positioning than which category is appropriate. The factors that go into determining a hotel’s category are cost, room size, amenities, location, design, ambience and character. Terry Butler / The Residence Hotel Deluxe. John Corcoran / Aspen Alps On an annual basis, about 45% of the people here are owners and their guests. I think everyone has a niche that goes beyond the categories of economy, moderate and deluxe. Even though we’re 50 years old, I’d consider us deluxe because of our location, privacy and decorum – 70% of the people here are return guests who value those things. P23 I. 18 Lodging Study - Phase 1 Final Report August 2012 Bob Daniel / Lift 1 Lodge Deluxe. Craig Melville / Mountain Chalet The categories don’t always capture what the hotel is all about. We are generally viewed as an economy sector hotel, though we have very nice deluxe rooms and 2 bedroom apartments that are definitely not economy. We also offer a list and quality of amenities that is not typical in the economy level. John Sarpa / Centurion Partners The categories we use in Aspen are not industry terms, but generally they’re OK. If anything, the “deluxe” category is a little too much of a catch-all – I would add the category of “luxury” just above that, which would have only a very small number of lodges in it. Warren Klug / Aspen Square I consider us in the moderate category. We are a full ownership condominium hotel, and draw visitors from the upper-middle class. Michael Brown / Hotel Aspen & Molly Gibson Lodge Moderate. We are a moderate lodge because of our Main Street Location, size of rooms, age of property, exterior of hotel, inclusions with price, and character of hotel. Our guests tend to be singles and couples, rather than families. This is generally because of the size of the room and lack of kitchens vs. Condominium style properties which likely attract families. 2. Can you describe your average customer, or the different kinds of clientele that stay with you? Is there a certain type of room, or size of room that people like most? Michael Behrendt / St. Moritz I have upper-middle class people who are happy with the 200-plus square feet on the second floor. I have people staying for all the athletic events. The average age used to be low 30s; now it’s more low 40s. People used to be satisfied with the hostel, but that’s been changing – in the last five to 10 years, people have been more willing to pay extra to have privacy, and the kitchenette. I don’t know how long the hostel is going to last. The hostel was also affected when the City built seasonal housing, such as Marolt Ranch, for the music students and Ski Company workers – it’s hard to compete with that. Chuck Frias / Frias Properties Our customers tend to be on the wealthier side, considering the travel costs. Because we rent condos and homes, we have more families. Compared to the resort industry in general, Aspen condos are smaller because the buildings are older and dated by ceiling heights and lack of master bathrooms. We overcome it by providing hotel-type services. Donald Lee / The Gant We are deluxe, but sell in all three categories. For example our premier units must have been completely remodeled at very high levels and include king size beds and washer/dryers among other things to achieve such a rating. Standard units do not have to contain such amenities and would not have been remodeled to the same P24 I. Lodging Study - Phase 1 Final Report 19August 2012 extent and therefore command lower rates and occupancies. It varies, but generally our clientele makes $150,000 / year and up. Paul Lovelace / Inn at Aspen Our average client is beginning skiing families and economy-minded travelers. Grandma can sit in a chair inside our common area and watch the kids learning to ski. Our room size averages 350 square feet, and that works for the short stays we have now. Some of the older owners will stay much longer of course. Rick Moore / The Innsbruck We have 10, two-bed units at 1,275 square feet and 7 one-bed units from 600-750 square feet. The larger size of our rooms makes us attractive to families, and 30% are coming from South America and Australia, staying one or two weeks. Skiing Company / The Little Nell + The Limelight Little Nell: Our customers are well traveled and affluent and tend to stay about five days. The off-street suites are in highest demand. People who are staying two to six weeks want the bigger rooms with all the activities and gear. Limelight: We get a variety of guests, from the economical traveler to the affluent for our suites. The customers of the old Limelight were saying the rooms were too small for families, the hallways were small and they needed two beds. What we have now, averaging 500 square feet, and two beds in half our inventory, seems to work well. Stan Clauson / Clauson Associates We have had clients with differing ideas about lodge size. There are those who believe that it requires 1,000 square feet and up to create a viable lodging product, and a recent lodge owning client who is happy with units that average 300 square feet – it’s all over the map. But many lodging professionals seem to believe that 500 s.f. makes for an minimum size lodge room in the context of a ski resort. Terry Butler / The Residence Hotel I have mostly couples in their 40s and 50s. It’s not the size of the room they care about as much as the spaciousness of the high ceilings, and the elegance of the décor. John Corcoran / Aspen Alps People do care about size. We have families who are looking to spend quality time away from their work lives – people who stay up to three to six weeks, whether they own here or rent. I think high quality, established events like the Music Festival, the Ideas Festival draw those people here. When people are on vacation, they are still going to work, and that requires space that condominiums provide. Bob Daniel / Lift 1 Lodge We expect to be family-oriented, but we have flexibility as well because of the ability to lock off so many units into smaller units. If you have a Baby Boomer couple that wants to spend time alone, they can; if they want to bring the extended family, they can do that as well. I think it will be multi-generational – there are a lot of safe choices for kids, being so close to downtown. In general, the industry has started to look at pulling back from very big rooms (in excess of 1,000 sf), although there are still properties that cater to this segment of the market and is looking at smarter, more functional P25 I. 20 Lodging Study - Phase 1 Final Report August 2012 design, flat screens and the right kind of furnishings. One of the challenges in the mountain environment is accommodating all the stuff people bring on mountain vacations. Craig Melville / Mountain Chalet Our typical traveler is an older skiing couple from the United States who has stayed with us before. As often as not, someone we would call a friend. Generally, people prefer more space, though they seldom ask about that when booking a room. They want to know what kind of beds and other amenities there are. It depends on the time of year, but the economy rooms that at least have a queen bed usually sell out first. During certain times, such as Food & Wine, our middle of the road rooms tend to sell out first, followed by deluxe rooms, and the economy rooms sell out last. John Sarpa / Centurion Partners Market demand for room sizes has been changing. A few years ago, people were focusing on very big rooms and very high rates, but the industry has come down from there. Location has a lot to do with how big rooms can be. The Nell averages 600 square feet – I’d say for a winter resort, you don’t want to go much below 450 square feet, which is roughly where the St. Regis is. But there are other niches – for your 3.5 to 4 star hotels, 350-400 is OK. A lot of it is about just satisfying expectations for whatever market niche you’re after. Warren Klug / Aspen Square Our customers tend to come from the upper-middle class. We have a lot of visitors 50 years old and up, but they are not our only customers. We get families and couples, partly because we have diverse options, from studios to three-bedroom units. Out of 102 condominium, 68 are studios at about 500 sq ft, so they are good for couples. Studios are roughly size of a hotel room, but they offer more than an average hotel. Each has a full kitchen, fireplace, living and seating area, and balcony. We get some groups who will use our conference room. On average, customers will stay for 5 nights in the winter and 3 nights in the summer. Michael Brown / Hotel Aspen & Molly Gibson Lodge Our guests really like our rooms with wood burning fireplaces and in- room Jacuzzis, as they are very unique. They also would like having food and bar on site, this would be a nice amenity to offer our guests, which we currently do not. Meeting space and fitness space would be nice, we get a lot of calls for it. 3. Are there amenities that you find people demand more and more? If there is one thing you could add to your lodge, what would it be? Michael Behrendt / St. Moritz We have a pool and a small common area. I think we need more common area. If I could I’d have an elevator, a bigger kitchen, an exercise room and a real conference room for groups. Chuck Frias / Frias Properties The most important amenity is service, service, service – we treat customers like family. The age and size of our inventory can be a liability and we have to make it up with a lot of personal service – you won’t find that anywhere else. Most condo rentals involve picking up a key and that’s it. We offer rental guests free airport transportation, daily maid service, free wireless internet and long distance calling, P26 I. Lodging Study - Phase 1 Final Report 21August 2012 concierge service, 24/7 coverage and check-in, HD tv and free pay channels, as well as pre-purchase lift tickets and ski rentals. If there is one thing we could add, it would be parking, larger units and master baths. Donald Lee / The Gant Transportation is our marquee service, also Wi-Fi, exercise rooms, strong TV programming with HD TV’s, well-appointed kitchens, high quality bedding and linens are just expected – even more than just five years ago. We now see more demand for king size beds and washer/dryers in the units – consumers want luxury offerings and high service levels. Paul Lovelace / Inn at Aspen Because of our out-of-town location, we emphasize the free parking and our ability to serve breakfast, lunch and dinner – to be self- contained. We have three banquet halls, which helps us get groups here. We also provide what people are demanding now, including free Wi-Fi, I-Pod docking and chargers. The shuttle to town is key for us – everybody want to experience downtown. Rick Moore / The Innsbruck Since we are relatively new, we have all the technology people are demanding, such as Wi-Fi, I-Pod dockers, plenty of outlets. Transportation is key – we have a van, an electric car and eight bikes. Skiing Company / The Little Nell + The Limelight It’s not just Wi-Fi anymore, it’s speed and bandwidth. You can’t make excuses for not having high-speed, and that’s a significant investment. You can have six devices in one unit and both the Limelight and the Nell have recently reinvested in this area. I hear expectations that the entire town should have Wi-Fi – after all, it’s Aspen. Fewer people are renting cars, so everybody expects a complimentary shuttle, and the Nell is offering Audi test drives. The Limelight provides five bikes, with a room set aside for storage and tuning. The Nell has six bikes for rental. The lack of bigger meeting spaces across the board is a barrier to landing groups. We’re always interested if the City is exploring a new public gathering place, as stated in the Civic Master Plan and the AACP. Stan Clauson / Clauson Associates In terms of amenities, people with busy lives and short stays want amenities on-site. A pool and a work-out area are almost essential now. Terry Butler / The Residence Hotel We’ve been wireless for years, people like the Jacuzzi tubs. Because of our downtown location and the land and leasing costs, you can’t have on-site amenities. But we’re the most centrally located hotel in Aspen, so we partner with Jean Roberts Gym, the Little Nell for the pool, our guests have access to the Caribou Club and the Aspen Mountain Club. We bring in any kind of service, from masseurs to spa treatment and baby-sitting. And we’re right in the middle of all the restaurants. If we could add something … parking would be nice – that’s a big problem for us. P27 I. 22 Lodging Study - Phase 1 Final Report August 2012 John Corcoran / Aspen Alps The biggest demand for amenities right now is free Wi-Fi, and we had to invest in that. The other two are concierge service and transportation. People place a high value on their time here, and they don’t want to sweat the details. If I could add something, it would be nicer, newer more spacious accommodations. Bob Daniel / Lift 1 Lodge We’re going to have the advantage of being a new product that responds to people’s technological needs which have become more and more a requirement for guests. Also convenience and service are two big things that customers demand. Traveling is more of a hassle today than ever and once they arrive, they want to fully enjoy their experience without hassles. Craig Melville / Mountain Chalet To most travelers it is first and foremost about value. What am I getting at this hotel for this price versus what I would get at another hotel for another price. They are firstly looking at price, room type and location. They then consider the amenities and the character of the hotel. They associate a set of expectations with each price level. For us, the personal connections over the years are very important. John Sarpa / Centurion Partners At the Residences at Little Nell, we’re focused on creating memories every time someone visits – you have to love to come back to overcome the competition and the transportation barrier. Providing guests with options for things to do during their stay is part of a very high level of service that places a high value on people’s time while they’re here. Warren Klug / Aspen Square We are a limited service hotel, which means we don’t have our own food and beverage service. We have a front desk with concierge services, a fitness area, conference facilities, pool, and hot tub. I’d say our most important amenity is our service. We strive to provide high quality service in all aspects of the business. In the condominium business there are different levels of service. We only manage the Aspen Square, so we can focus on the service provided here. We operate similarly to the Gant in that respect. If we were going to add one thing it might be limited breakfast service because it seems travelers, especially Europeans, expect breakfast to be included in their rates. This would require more space and at least a limited kitchen. Both would be helpful for meetings as well. We might also consider additional meeting and function space to accommodate more groups and special events, like weddings, meetings and meals for meetings and seminars, larger receptions and function space. Michael Brown / Hotel Aspen & Molly Gibson Lodge I think that the current occupancy figures do not warrant adding lodging inventory to the community. Significant incentives should be offered to the older/affordable lodging base in order to allow them to preserve what they have and upgrade for the future. Incentives need to go beyond the LP overlays offering, which few if any lodges have successfully utilized since its inception. The LP overlay doesn’t go far enough to assist these redevelopments. Additionally, the city fee’s and permit process are cumbersome for smaller lodges. The city process lends itself to large scale development, e.g. developers doing large projects that can afford high priced architects and planning P28 I. Lodging Study - Phase 1 Final Report 23August 2012 consultants. We had to do a simple project that cost $20,000 and it cost us $3,000+ in city fee’s + $5,000 in architectural fee’s. This is a large sum to navigate the city process to do a simple project. E.g. residing an exterior wall, bathroom remodel, etc. 4. What is your lodge’s strategy for success? What are the ingredients that make up long-term viability for you? Michael Behrendt / St. Moritz Just keep giving good value. I don’t plan any changes in the short- run, but if present trends continue, we may want to convert the hostel to regular hotel rooms. Chuck Frias / Frias Properties I think there’s a lack of awareness in town about the stock of functionally obsolete condos. We had the very first condos in the United States, and a lot of them have 8-foot ceilings, and many have no parking. The level of service we provide and the attraction of Aspen is what keeps us going. But it would be great if the City could focus on how to address this inventory – we’re talking about a lot of units and a lot of customers that spend money. Donald Lee / The Gant Continuous improvement of the product and service, service, service. You truly have to connect to the customer – knowing their name, what they like. Overall, staying current with customer expectations is critical, which includes staying ahead of all the technological changes – that can be as simple as having enough outlets when every family member is plugging something in. Paul Lovelace / Inn at Aspen We’re looking at both interior and exterior remodels. We have room for water features outside in the back, volleyball or bocci courts, outside food service – it’s still in the planning stage. Beyond that, when you have a building that is dated, you need to focus on customer service, and that means building relationships one at a time. We need to continue to leverage the three banquet halls by focusing on group business. Rick Moore / The Innsbruck High quality rooms and service. I think we are in a niche that will keep working, in terms of occupancy. The fractional ownership market has been down for a few years now. Skiing Company / The Little Nell + The Limelight Little Nell: Twenty years ago, the Nell was the only five-star hotel in a mountain resort. Now there are hundreds. You have to continually evolve as people’s interests and expectations change all the time. We’ve had tremendous loyalty, but now as they’re getting past 60 and 70, they’re not coming as often. We have to make sure we’re relevant, we’re looking to stay fresh and have a more modern appeal. That’s reflected in the renovation and the new room furniture – less overstuffed, more spacious. Limelight: Younger people are more adventuresome and value- conscious, and they’re getting bombarded by marketing. This generation will have 15 jobs in their lifetime, while the older generations had two – in general, the sense of loyalty is not as strong as it was. I think we’ll need a bigger fitness center. P29 I. 24 Lodging Study - Phase 1 Final Report August 2012 Stan Clauson / Clauson Associates As a lodge, you need a critical mass of rooms to make the economics work, and that’s why so many of the smaller lodges aren’t here anymore. The small lodges that remain tend to be owned by people who are committed to keep it going for their own reasons. Terry Butler / The Residence Hotel As the owner-operator, I follow up with customers all the time. I live in the hotel, so we sit down and talk and become friends. I call them on the phone, I send cards to their dogs – we’re very dog-friendly. Forty percent of our customers bring their dogs. People who want the new modern room, they won’t come here – but there are people who like the heavily decorated rooms with antiques from all over the world and a lot of personality. It’s a very personal hotel, like a big family. John Corcoran / Aspen Alps We’re always keeping a close eye on the implications of generational change. What is happening with the Baby Boomer generation? What are the personal interests of the next generation? Bob Daniel / Lift 1 Lodge We recognize that the Gen X and Gen Y generations want more choices and a variety of experiences – there’s less automatic loyalty than in the past, and that’s a reality. We need flexibility and options in terms of our product mix. Craig Melville / Mountain Chalet The hotel biz is pretty simple: provide a quality product for a good value. We have the huge advantage of owning the property for a long time, so we have avoided the difficulty of new costs of building. John Sarpa / Centurion Partners The seamless ability to have different experiences through the lodge. We want to bring people choices of experiences – we want the customer to look back and say; “They convinced us to do it and we loved it” – whether it’s hot air ballooning, Nordic skiing or experiencing the real Aspen. Warren Klug / Aspen Square We build on the strengths we have – our location is almost unmatched, and we have high quality accommodations. We really emphasize quality and friendly service. This goes for the staff as well as the quality of the accommodations. We have to keep the apartments up and remodel as necessary. Our owners are committed to maintaining and upgrading our common areas and individual units as needed to keep up with the marketplace. We are really fortunate to have condo accommodations that have in-room facilities (full kitchen, living/siting area, patios, fireplace). We also have a full time marketing and sales person. We continue to focus on international sales, which has been very successful especially in the last few years when domestic ski activity has been soft. Michael Brown / Hotel Aspen & Molly Gibson Lodge Continual reinvestment into our property. P30 I. Lodging Study - Phase 1 Final Report 25August 2012 5. How important are special events? What special events bring you the highest occupancy? Is there a type of special event that you think would fill your lodge? Michael Behrendt / St. Moritz We benefit from all the special events except Forstmann-Little (an annual gathering of the very wealthy). We have all kinds of people bleeding over to us, with our prices -- from Food & Wine to all the athletic events. We get participants and the support personnel. Chuck Frias / Frias Properties There’s a huge correlation between special events and occupancy. They do work and they’re essential. We, and others in the lodging community, provide many comp (free) rooms to help host the events. The City and County should consider providing equal amounts to help support these events. Donald Lee / The Gant Some special events are vital and others not so much. Food & Wine is extremely important to the community. It is a great example of what the right type of special event can grow into and is a good fit for Aspen. I’d like to see a greater focus on reviving Gay Ski Week – that was working extremely well and then it wasn’t. We should be working with them, maybe move it to March and support it. One-day events like the bike race just don’t have the impact on lodging, but the PR and marketing is important – the question will become: Is it a big enough return for the investment? The collaboration on special events across lodging, retail, restaurants, ACRA – that has gotten better over the years. Paul Lovelace / Inn at Aspen We get a lot of support crews for special events – the most extreme example if the X-Games, when we’re ESPN’s headquarters. We get a lot of participants in the athletic events, and from events in Snowmass. Rick Moore / The Innsbruck Food & Wine and X-Games are no-brainers. I like the bike race; it keeps our name on TV, and if it grows it could become a big deal. Bicyclists love Aspen. Skiing Company / The Little Nell + The Limelight They’re very valuable, especially the destination events, the long-term events with more moving parts and support personnel, where most of the participants and spectators are from out of town. Eventually, the bike race could become that. In the summer, it’s all about timing – what is there before Food & Wine? What is there after the Music Festival, in the last week of August? The smaller events are also important because they add to vitality; people want choices and that small event could make them stay another day. There has been more collaboration across the board on events, and that’s good for everyone – there’s been more of an effort to get all the players involved. The restaurants are becoming more of a player, and that’s a big deal. We need a short-term, mid-term and long-range strategy on special events. The City has been reaching out more with the Mining for Ideas Committee. It might be valuable for the City to track specific events with tax revenues, so we can all get a sense of the impact. When the Music Festival changed its dates, it had a huge impact – we even saw it in the Gondola rides. P31 I. 26 Lodging Study - Phase 1 Final Report August 2012 Finally, there are so many calendars, it doesn’t seem as if there’s a one-stop shopping calendar. We know through our service experience that people love to be handed a ‘menu’ of events with the kind of detail they need. Stan Clauson / Clauson Associates If special events are consistent with Aspen’s character, they work really well. Food & Wine is a very successful special event. The X-Games are a little dysfunctional with regard to the lodging sector and overall ambience, but the overall publicity is certainly important. Terry Butler / The Residence Hotel Food & Wine and X-Games are great, but we need more big events to fill out the seasons; in early December and late August. I’d rather one big event than four little ones. It helps me because I can’t do the kind of marketing that others do. John Corcoran / Aspen Alps Special events are great – we participate in lower rates. It’s important to experiment with events that are consistent with Aspen’s character, which is a combination of culture and outdoor activities. Only rarely do newer special events have any contribution to the bottom line for us – usually it is the established events that are more productive. Bob Daniel / Lift 1 Lodge Every mountain resort has festivals and things like that, but Aspen has a really strong set of arts and cultural institutions that bring a level of quality that’s undeniable. That’s what sets us apart. People know the difference between a “made up” festival and one that offers a real experience. The X-Games is so critical, it creates a young, hip vibe that Aspen just didn’t have before and helps Aspen be relevant for the future snow riders. Craig Melville / Mountain Chalet Special events make Aspen a more desirable place to be, and whether that improves our bottom-line directly or indirectly is not important. I’d say the Music Festival is the longest lasting and the best for business. Considering short-term events, Food & Wine is the best. The bike race is a nice addition, but we will have to wait each year to see if it comes to Aspen so it is not ideal. And it requires a lot of comp (or nearly comp) rooms. Any popular event that happens downtown is likely to fill our lodge. John Sarpa / Centurion Partners The big special events are big enough to fill everything. While the smaller ones aren’t that great for occupancy, they do build the brand and that’s important. Warren Klug / Aspen Square They are extremely important to the community because they give people that much more reason to come visit. The king of special events is X-Games, with Food & Wine Weekend right up there too. Food & Wine is important because it is at a time when we’re not typically busy. June can be a tough month to attract people because people are wrapping up school and are not yet traveling for summer vacations. The bike race is also an important event, but it has only brought people for one night. As the race continues to gain notoriety we expect it to help drive more visitors to the area. It is hard to attract visitors in June and even in late August, so Food & Wine and P32 I. Lodging Study - Phase 1 Final Report 27August 2012 the bike race are helpful for us. We were disappointed to see the BBQ event dissolve. It was during a slow week, and could have helped draw more visitors building on the bike race activities of that same week. Michael Brown / Hotel Aspen & Molly Gibson Lodge Lodges should do what’s best for lodges, each one is unique, and they should have the amenities they think go best for their customers, not what the AACP thinks they need… For us, a bar and restaurant would be a convenient amenity, as well as a fitness facility, and perhaps a small massage treatment room (nice after a long day of activities). Guests aren’t going to have every meal or drink in the hotel restaurant/bar, they want to experience town. It’s just nice for the times when they want that convenience. Additionally, it’s nice for locals to have a poolside bar/restaurant that’s an enjoyable hangout. We are in the moderate hotel category and the accompanying restaurant/bar would speak to that price point for food and beverage. 6. How will Aspen stay relevant, attractive and compelling for future generations? Are you seeing changes in demand for types of rooms, amenities? What do you think visitors will be looking for in the future? Michael Behrendt / St. Moritz More venues for young people downtown. If you approve a larger building, let’s have an economical nightclub in the basement. We really lost something with Cooper St. Pier. The more outdoor dining the better, more buskering* and jugglers, more vendors, more music – how much would it cost to pay different groups of music students to be out every night? The chairs around the pedestrian malls are great, but more tables that aren’t just for a restaurant would be nice. The new C.P. Burgers at the ice rink and things like the Saturday Market. *(A busker is a street performer.) Chuck Frias / Frias Properties One aspect that people might not be aware of is the tremendous success of the fractional inventory. People who own a whole ownership condo outright have been less and less likely to rent it over the years. But in terms of hot beds, the performance of fractionals is better than anyone anticipated. We need to incentivize the older condominiums, which is most of the current inventory, to enhance the product. Some functional elements like short ceilings and lack of master baths should be improved. The overall unit size cannot be easily changed, so we need to improve other elements that we can control. Donald Lee / The Gant It’s about the exceptional experiences that Aspen has to offer. The sheer number of cultural offerings gives people a lot of choices – it gives us metropolitan flair in a small town. We don’t have to reinvent the wheel. I think we are all after the same thing -- how do we bridge maintaining Aspen’s character while embracing modernization, embracing energy efficient technologies, etc? We need to maintain strong air service, continue to modernize. What the SkiCo and the lodges have done with international markets is really showing up now. Paul Lovelace / Inn at Aspen Stay fresh, stay relevant – you have to evolve and change. The TV exposure of the X-Games shows Aspen is a place where young people can have a good time. – it’s not as elite and stuffy as the reputation can be. P33 I. 28 Lodging Study - Phase 1 Final Report August 2012 Rick Moore / The Innsbruck I’d love to see Aspen get young again. Only two of our 13 employees live in town. I think if we had more rental employee housing, you’d see that young labor force enjoying town and coming back, not just for work. On the other hand, losing the Cooper St. Pier was a real loss. It’s not easy for working kids to go out and have a good time at night like they used to. Skiing Company / The Little Nell + The Limelight How do we get the 16 to 20-year-olds coming back – we’ve focused on that ever since allowing snowboarding on Aspen Mountain and with the X-Games. That has to be part of the mindset in the whole town. There has to be as many compelling things off-hill, with music and public gathering areas. People don’t do 8:30 to 4:30 skiing anymore – we need to feed that social component. Stan Clauson / Clauson Associates We need to keep changing and evolving. We need to embrace dramatic bold strokes; the new Art Museum is an example of that. If it’s all about preserving a certain image of the 1970s and ‘80s, that’s not in our best interest. There’s a certain phobia about development that’s not based in reality – to have a three-story town is not emulating Vail; we won’t inherently lose our soul and character. Terry Butler / The Residence Hotel I’ve been on the Commercial Core and Lodging Commission for 15 years and fought for the outdoor dining – we need more nightclubs. We need fun, exciting activities that keep our visitors busy. The City shouldn’t pass so many regulations that it’s no longer fun. John Corcoran / Aspen Alps We need to stay true to ourselves. What are our values? It’s recreation, the arts and culture, environmental stewardship – all the things that make this place special – we shouldn’t lose sight of those basic things. I would trust the people who come here in the future to appreciate what’s here, and also to be part of innovative thinking – that’s part of Aspen’s heritage; but I don’t think it’s necessarily the government’s job. Bob Daniel / Lift 1 Lodge The Skiing Company has done a great job of planting the seeds. Carbondale has done some interesting things with First Fridays. In Aspen, we used to have the FAC (Friday Afternoon Club) where the Jerome had music and kegs outside. As a traveler, coming across things like that, finding that informal fun is so important. We should remember that for most people who don’t know Aspen, it’s very intimidating, and we need to be aware of that. The malls are great, with outdoor dining, and people playing music – that’s a comfortable approachable environment for visitors no matter their background. Craig Melville / Mountain Chalet Character and media attention that derives from special events, which are on track thanks especially to the Ski Co. Also, we need to maintain the character of downtown, but I have no idea how. We do a fair job of maintaining the look, but you can’t force character. The market will determine what succeeds. John Sarpa / Centurion Partners The Aspen Idea is unique to us, it’s historic, it’s genuine and we don’t P34 I. Lodging Study - Phase 1 Final Report 29August 2012 leverage it as much as we should. The three parts of the Aspen Idea – mind, body, spirit – could be a way to organize the choices Aspen can offer – like a menu of experiences. Warren Klug / Aspen Square We need to honor our history and the historical look of our community. New development should fit in with the community. We also need to understand that a discerning public wants nice accommodations. There are a lot of old and tired condominiums in town, so updating and upgrading those accommodations is important. We have to keep up with guest expectations, and remember there is a lot of new, high quality inventory all over ski country (Park City, Deer Valley, Vail, etc.). We must have an ongoing and concerted effort to make sure our service is the best there is. Friendliness, service and personality are essential to compete effectively with others who are out after our same customers. Competition is fierce, and the “people ingredient” and personality must be right. In terms of new lodging, we need to think about on-site mitigation requirements. It doesn’t always make sense to have employees living on-site, especially when they have families, and when that space could be used for lodging. Michael Brown / Hotel Aspen & Molly Gibson Lodge The special events that Aspen presently has are fantastic and the more we can add that are handcuffed to Aspen the better. Food and Wine and X-Games are the highest occupancy, but the events that the Institute and former Given used to bring in were not insignificant. The Given meeting facility brought in many Aspen first time high- income earners (Doctors, etc) that become life-long Aspen tourists once they visited. Big loss. 7. Many of today’s year-round residents stayed at a relatively affordable lodge when they first came to town, grew to love Aspen and decided to live here. Today, public feedback tells us there is strong support for “entry-level” lodging. With a steady decline in moderate and economy lodging since the mid-1990s, there is a community aspiration to replenish those types of lodges. What do you think about this? Do you agree? Disagree? Michael Behrendt / St. Moritz I think we already serve that purpose. I understand the common wisdom that we need low-cost accommodations and I can sympathize, but there are economical lodges. Our phones aren’t ringing off the hook. People thank us for being here, but at the same time, we’re not turning people away the way we used to. Occupancy levels for economy lodges show only moderate demand. Lower prices don’t seem to give me a big advantage. If the price is too low, people can be suspicious of the product. Chuck Frias / Frias Properties I don’t know the solution. There are plenty of owners I know who came on a college trip or with mom and dad and that’s how Aspen became their place. The question is how do we keep young people coming? We used to have significant college groups in the 1970s, but then the resort industry expanded substantially. There were lots of other choices where the travel costs were lower, and the Internet has made all resorts more visible. That makes higher-priced resorts like Aspen more difficult to sell. We should continue to solicit economy lodging customers but the lodges over the years have closed because they are not financially viable without subsidies. P35 I. 30 Lodging Study - Phase 1 Final Report August 2012 The intimidation factor of Aspen as a luxury celebrity destination is a reality as well – I’m not sure as locals we really appreciate how the rest of the world sees us. And since the mid-1980s, we’ve lost about 50% of our company’s original condo inventory because people don’t want to rent out anymore – they don’t have to financially, and they don’t want to worry about damage to the property. Donald Lee / The Gant It is not 1970 any longer, times have changed. While I do think that period was the glory years for the ski industry for a lot of reasons, it is now 2012 … I don’t think we move forward by looking backwards…I don’t think we replenish new ski bums with economy lodging. I think other factors are at play today. There is simply no demand for this lodging and it is not viable to run and maintain the appropriate infrastructure to be competitive at economy rates, which is why these properties have diminished. Paul Lovelace / Inn at Aspen I think entry-level lodging is important for Front Range and Western Slope visitors who want to see what Aspen’s all about. We want them to stay for two or three nights and not just one – get ‘em hooked on skiing and the area. People budget their vacations: They might spend on the lodging and skimp on food. Families with kids might prefer the comfort of the lodging versus going out to eat. I see people being more frugal – not renting a car, and we want to provide amenities like free wine and cheese in the common area to help them decide to come. Rick Moore / The Innsbruck My parents owned Bethune & Moore at the ABC back in 1966 when I was starting college and we used to stay at the Smuggler Inn as a family, and Aspen has been my home base since. I see that the demand is there for the upper end, but I’d like to see more lower end for people with limited means – it’s good for town. I’d even go along with a government subsidy. Skiing Company / The Little Nell + The Limelight Nell: Six months out of the year, we are economy and entry- level. I think there is an on-ramp in Aspen. We’re trying to build a late April skiing school and are looking at a coordinated effort for early December. The Skiing Company supported the COWOP recommendation for the Lift 1A area – a bigger hotel base would be a catalyst for bigger citywide events. The economy hotels struggle at that entry-level because they can’t market the way people expect today, or Expedia takes a big cut. We recognize that our low rates in the off-season are tough for them – if their rates are relatively low in peak season, where do they go from there in off-season? Stan Clauson / Clauson Associates The bottom line is that it’s not cheap to get to a destination resort, and you have to pay for the quality of Aspen: the natural environment, the scenic views, the recreation, the arts and culture, the historic buildings. It’s a unique place that’s in demand, and that means prices are relatively high to stay here, to eat here, to ski and paraglide and so forth. Relatively few people will come here as tourists with limited means. On the other hand, the workers who come from all over, with six or eight kids renting a house – many P36 I. Lodging Study - Phase 1 Final Report 31August 2012 of them are going to enjoy Aspen and come back as they get older. So I don’t really subscribe to the idea that we can effectively bring economy travelers here with affordable lodging. Terry Butler / The Residence Hotel I believe in the free market. Water finds its own level. I’d like to see less government control of everything. John Corcoran / Aspen Alps A healthy mix is important, but I think the market can take care of that. The lodging incentive program is fine, as long as it does not serve as a disincentive for higher end accommodations. I don’t think it’s the City’s place to have an impact on the industry. Bob Daniel / Lift 1 Lodge Part of the answer is that the next generation comes from the current generation bringing their kids with them to vacation. Another is the young people who are willing to live eight to a house to work here – they’re going to come back. The reality is that there are far more opportunities now with the affordable housing program for people to come and live here than there were when I arrived in 1988. Craig Melville / Mountain Chalet I agree and disagree. I think that there is a strong desire for value lodging. We are not going to get many customers who are looking for the cheapest vacation. They simply will not look to Aspen because of our reputation. However, there are a lot of middle-income people who have heard about how great the skiing and town are here and want to come, but cannot afford the more expensive properties. They want a value option and those are hard to come by because of the costs associated with a new hotel. How do you build a new hotel and run it profitably in the moderate sector? I do not have an easy answer for that question. When you get into the costs of building in Aspen it becomes very hard to make it work -- from the land, to the stringent codes, to the design/architectural work in conjunction with city council to construction costs. The cards are stacked against building affordably and thus succeeding as a moderate hotel. John Sarpa / Centurion Partners It’s a great idea to see if we can preserve the few that are left or find a way to assist some development in the lower tiers. The question for the community is how much do we want to do this, because it’s going to take either public funding, financing or some public land. At the same time, we need to continue to attract a high-end clientele – we’re one of the best in the world, but there are far more choices now. The traveling public spends less time in more places, and that’s new. There’s more pressure on maintaining the high-end clientele than ever before. Warren Klug / Aspen Square Times have changed. Economy lodging is not Aspen’s market. We are an upper-middle class market, and a luxury market, in terms of lodging, restaurants, and activities, and should not be building ski bum accommodations. I don’t think small lodge rooms will sell because it’s not Aspen’s market. That is not what people want in coming to an Aspen vacation. And I don’t think the City should be promoting that. If the goal is affordable lodging, that goal is wrong. The marketplace should determine what the town needs, and the economy market is just not there. No matter what lodging P37 I. 32 Lodging Study - Phase 1 Final Report August 2012 is available, the attraction of Aspen speaks to an upper level market in our shops, restaurants, activities and our $100 daily lift ticket. Aspen has a strong affordable housing program, which helps with the issue of new employees and providing reasonably priced housing for businesses. The city does not need to be providing “ski bum” lodging or entry level lodging. Aspen Square has several affordable housing units for staff both on and off-site. Michael Brown / Hotel Aspen & Molly Gibson Lodge Older lodges are an important offering for Aspen tourism. For Aspen to stay relevant to a good deal of visitors to our city, the older lodges need to be maintained. In order for them to be maintained, they need reinvestment, and for this to happen the city needs to work with older lodges to make the city process easier and affordable. It’s presently way to expensive and difficult to navigate. Further incentives for improvement need to be put in place, including fee exemptions for upgrade and redevelopment and additional free market incentives. Free market is one of the economic drivers that make affordable lodging investment possible. 8. Is the growth management incentive program for small sized-rooms viable? Stan Clauson / Clauson Associates We are very familiar with the program. The residential component and lowered mitigation are essential incentives and need to be retained. On the other hand, the smaller rooms favored by the incentive program will not be favored by all lodge development. Bob Daniel / Lift 1 Lodge It would work better if the requirement was just a certain square- footage average for rooms. But when you add in the total floor area requirement, it really squeezes people too much. The effect is there just isn’t enough room for basic amenities and non-unit space you need to make the hotel work efficiently and to meet the demands of the guests. John Sarpa / Centurion Partners Generally speaking, it’s not viable. It might work here and there, but there aren’t many properties I can think of where it would work. Skiing Company / The Little Nell + The Limelight Discussion ran late, no answer on this question. 9. There has been talk of the city partnering with a developer to build a moderate/economy lodge. Do you think this is viable? Do you think it’s a good idea? Stan Clauson / Clauson Associates Generally, I don’t think the City should get into the lodging business. If the City is going to partner on anything, it should make sure the Lift 1A area truly becomes a second portal with great amenities. This should have happened with the COWOP process, but now needs some alternate incentives. I’d even suggest that upper Aspen Street is a blighted area worthy of an Urban Redevelopment Authority. More than anything, Aspen Street/Lift 1A improvements will help save the smaller lodges in the Shadow Mountain and Main Street neighborhoods. P38 I. Lodging Study - Phase 1 Final Report 33August 2012 Also, the City should consider taking the Lodge Incentive Program and let it apply to multiple sites. If a lodge project on one property can use 40% of its total floor area as free market condos to make it financially viable, there’s no reason we shouldn’t be able to apply the same math to two sites. One site might get the residential development, the other would get transferred lodging units to make for a more viable lodging complex. Bob Daniel / Lift 1 Lodge If you want to do it, do it in locations that make sense. Where do you see the affordable lodges now? They’re in off-beat locations. Maybe the Zupancis property, maybe the BMC property, where you’re on a bus line. The City shouldn’t be a developer, but it’s possible to partner with someone if the public sector brings land to the table, or very steeply discounted – and you couldn’t require full mitigation. John Sarpa / Centurion Partners Only if the town puts more value on the table. Even then, the private and public sectors are very suspicious of each other. I think the private sector would be worried about how long the whole thing would take. I think meaningful incentives are the best way to go, and let the market take it from there. Skiing Company / The Little Nell + The Limelight The City can be most helpful by focusing on how to improve occupancy as a whole, and helping existing lodges. P39 I. 34 Lodging Study - Phase 1 Final Report August 2012 Aspen’s Lodging Inventory - 2012 * Christiana Lodge only rents 1 unit as a hotel ** L’Auberge d’Aspen is in the process of converting from a hotel to a religious use. These hotel units are no longer rented, but are included in the list because they were rented for a portion of 2012. Lodge Property Units Classification Studio / 1 bd 2 bd 3 bd 4 bd Kitchen Lodge Property Average Room Size Lowest Room Size Highest Room Size Annabelle Inn 35 Moderate 35 0 0 0 0 Annabelle Inn 225 Not available Not available Aspen Alps 83 Standard/ Deluxe 0 59 18 6 83 Aspen Alps Not available Not available Not available Aspen Meadows 98 Deluxe 94 4 0 0 0 Aspen Meadows 750 700 1000 Aspen Mountain Lodge 38 Moderate 38 0 0 0 0 Aspen Mountain Lodge 275 250 280 Aspen Square 101 Moderate 75 24 2 0 101 Aspen Square unknown 500 1800 Christiana Lodge*1 Moderate/ Deluxe Not available Christiana Lodge*Not available Dancing Bear Lodge 9 Luxury 0 0 9 0 9 Dancing Bear Lodge 2000 1700 2200 Hearthstone House 16 Moderate*16 0 0 0 0 Hearthstone House 225 170 340 Hotel Aspen 45 Moderate 45 0 0 0 1 Hotel Aspen 350 275 443 Hotel Durant 20 Moderate 20 0 0 0 0 Hotel Durant 233 175 305 Hotel Jerome 93 Luxury 78 15*0 0 0 Hotel Jerome 600 (approx.)525 750 Hotel Lenado 19 Moderate/ Deluxe 19 0 0 0 0 Hotel Lenado 261 255 270 Hyatt Grand Aspen 122 Luxury 2 20 27 1 50 Hyatt Grand Aspen 400 - 600 400 1800 Independence Square 24 Moderate 23 1 0 0 3 Independence Square Not available Inn at Aspen 122 Economy 120 2 0 0 Not available Inn at Aspen 350 Not available Innsbruck Inn 17 Moderate 7 10 0 0 17 Innsbruck Inn 700 550 1126 L'Auberge d'Aspen**16 Moderate Not available L'Auberge d'Aspen**Not available Limelight Hotel 126 Deluxe 125 1 0 0 119 Limelight Hotel 485 315 1300 Molly Gibson Lodge 53 Moderate 52 1 0 0 3 Molly Gibson Lodge 300 190 851 Mountain Chalet 58 Moderate 54 4 0 0 4 Mountain Chalet 225 210 760 Mountain House Lodge 27 Moderate 26 1 0 0 1 Mountain House Lodge 225 192 492 Residences at Little Nell 26 Luxury 0 0 19 7 25 Residences at Little Nell 2,900 (approx.)2000 3250 Ritz Carlton Club 73 Luxury 0 22 51 0 73 Ritz Carlton Club 1,800 (approx.)1500 2122 Sky Hotel 100 Deluxe 94 6 0 0 0 Sky Hotel 350 300 550 Snow Queen Lodge 8 Economy 8 0 0 0 2 Snow Queen Lodge 250 160 350 St. Moritz 37 Economy 21 4 0 0 8 St. Moritz unknown 110 950 St Regis Residence Club 25 Luxury 0 15 10 0 25 St Regis Residence Club 2000 1900 2200 St. Regis Resort 179 Luxury 177 2 0 0 3 St. Regis Resort 600 600 1100 The Gant 143 Moderate/ Deluxe 13 95 25 7 143 The Gant 1,000 Not available The Innsbruck 17 Deluxe 7 10 0 0 17 The Innsbruck Not available 600 1275 The Little Nell 92 Luxury 91 1 0 0 0 The Little Nell 600 - 700 600 2500 The Residence Hotel 8 Deluxe 4 4 0 0 6 The Residence Hotel 750 450 1600 Tyrolean Lodge 16 Economy 16 0 0 0 16 Tyrolean Lodge 350 336 400 P40 I. Lodging Study - Phase 1 Final Report 35August 2012 Lodge PropertyUnitsClassificationStudio / 1 bd2 bd3 bd4 bdKitchen Lodge Property Average Room Size Lowest Room Size Highest Room Size Annabelle Inn35Moderate350000 Annabelle Inn 225 Not available Not available Aspen Alps83Standard/ Deluxe05918683 Aspen Alps Not available Not available Not available Aspen Meadows98Deluxe944000 Aspen Meadows 750 700 1000 Aspen Mountain Lodge38Moderate380000 Aspen Mountain Lodge 275 250 280 Aspen Square101Moderate752420101 Aspen Square unknown 500 1800 Christiana Lodge*1Moderate/ DeluxeNot available Christiana Lodge*Not available Dancing Bear Lodge9Luxury00909 Dancing Bear Lodge 2000 1700 2200 Hearthstone House16Moderate*160000 Hearthstone House 225 170 340 Hotel Aspen45Moderate450001 Hotel Aspen 350 275 443 Hotel Durant20Moderate200000 Hotel Durant 233 175 305 Hotel Jerome93Luxury7815*000 Hotel Jerome 600 (approx.)525 750 Hotel Lenado19Moderate/ Deluxe190000 Hotel Lenado 261 255 270 Hyatt Grand Aspen122Luxury22027150 Hyatt Grand Aspen 400 - 600 400 1800 Independence Square24Moderate231003 Independence Square Not available Inn at Aspen122Economy120200Not available Inn at Aspen 350 Not available Innsbruck Inn17Moderate7100017 Innsbruck Inn 700 550 1126 L'Auberge d'Aspen**16ModerateNot available L'Auberge d'Aspen**Not available Limelight Hotel126Deluxe125100119 Limelight Hotel 485 315 1300 Molly Gibson Lodge53Moderate521003 Molly Gibson Lodge 300 190 851 Mountain Chalet58Moderate544004 Mountain Chalet 225 210 760 Mountain House Lodge27Moderate261001 Mountain House Lodge 225 192 492 Residences at Little Nell26Luxury0019725 Residences at Little Nell 2,900 (approx.)2000 3250 Ritz Carlton Club73Luxury02251073 Ritz Carlton Club 1,800 (approx.)1500 2122 Sky Hotel100Deluxe946000 Sky Hotel 350 300 550 Snow Queen Lodge8Economy80002 Snow Queen Lodge 250 160 350 St. Moritz37Economy214008 St. Moritz unknown 110 950 St Regis Residence Club25Luxury01510025 St Regis Residence Club 2000 1900 2200 St. Regis Resort179Luxury1772003 St. Regis Resort 600 600 1100 The Gant143Moderate/ Deluxe1395257143 The Gant 1,000 Not available The Innsbruck17Deluxe7100017 The Innsbruck Not available 600 1275 The Little Nell92Luxury911000 The Little Nell 600 - 700 600 2500 The Residence Hotel8Deluxe44006 The Residence Hotel 750 450 1600 Tyrolean Lodge16Economy 1600016 Tyrolean Lodge 350 336 400 Aspen’s Lodging Inventory - 2012 P41 I. 36 Lodging Study - Phase 1 Final Report August 2012 Interviews with Aspen’s Short Term Rental Managers The following is a compilation of answers from interviews with short term rental companies, specializing in condominium and single-family home rentals. Please note that responses from one of Aspen’s largest condominium rental companies, Frias Properties, are included in the “Interviews with Aspen’s Lodging Sector” section, above. 1. For many years, StayAspenSnowmass and ACRA asked lodges to identify themselves as deluxe, moderate or economy. Using the same terms, what kind of inventory do you manage/operate? Tricia McIntyre / Aspen Luxury Rentals Most of our rentals fall in the luxury category. We manage single-family homes with three or more bedrooms. I don’t think our inventory is indicative of the overall market short-term market, but it represents a specific sector. Carrie Bryant / Aspen Signature Properties About 90% of our rentals fall in the luxury category. We work primarily with owners of homes that are available by request. The properties are managed individually not by us, so the number we work with fluctuates based on the market. 2. Can you describe your average customer, or the different kinds of clientele that stay with you? Is there a certain type of room, or size of room that people like most? Tricia McIntyre / Aspen Luxury Rentals In general our customers want to be near the core or in the immediate vicinity with four or more bedrooms. All of our clients are looking for units in the luxury category that have been upgraded and come with amenities. In the winter, ski-in / ski-out units in the Aspen/Snowmass core are most in demand. During the summer, properties in the West End represent highest demand. New Year’s Eve week is definitely the peak week of the entire year. Other high demand periods are X-Games, President’s Day, March, Food and Wine, and all of July and August. There’s been a drop in visits during Christmas week because more people are only traveling for one week in the winter, or it’s too expensive for them to travel during Christmas. Our summer guests stay for a whole month or more, while our winter guests stay for a week or so. For Food and Wine and holiday weekends we’ll see 4 - 7 night stays. Carrie Bryant / Aspen Signature Properties Our summer guests tend to stay for 1 - 2 months, while our winter guests tend to stay for 1 week long during the regular season and 7 - 14 nights during the holiday. Our 3-5 bedroom units are most in demand. Renters are also looking for amenities like a hot tub and A/C in the summer. The busiest periods for us are July 1 through Labor Day and Dec 18 through March 25. 3. What kinds of units are least in demand? Tricia McIntyre / Aspen Luxury Rentals Anything outside of the core of Aspen that is not in the East End or West End is difficult to rent. We tend to have a more difficult time renting units that have fewer than three bedrooms. Carrie Bryant / Aspen Signature Properties Standard Units that have not been upgraded, as well as older properties, tend to have a lower demand than newer and upgraded properties. P42 I. Lodging Study - Phase 1 Final Report 37August 2012 4. What trends do you see regarding nightly rental rates? Tricia McIntyre / Aspen Luxury Rentals Nightly rentals have risen approximately 10% from the 40% drop that was experienced during the recession. We’re seeing average nightly rentals between $2,000 and $6,000. Carrie Bryant / Aspen Signature Properties I see nightly rates becoming stronger over the next year. For our rentals, an average summer rate is around $1,000 and an average winter rate is $2,000 or more. That does not include major holidays, which tend to command higher rental rates. Our properties can rent for up to $25,000 a night. 5. Are there any general trends you see in the short-term rental market? Tricia McIntyre / Aspen Luxury Rentals In general, consumers are looking for larger units with 3 - 4 bedrooms. Most guests want these to be newly renovated in a contemporary style. The old rustic mountain look is not nearly as popular anymore. These guests also want their rental to be in the core area of where they are visiting. We have noticed that our consumers are younger in age and generally have families. These guests want value for their money. If they are paying $6,000 a night, they are going to expect ski passes, fitness passes, chefs, transportation, etc. Additionally, most consumers now want air conditioning in their rental, and this is a reason why some older properties or properties that have not been upgraded do not always rent. Carrie Bryant / Aspen Signature Properties The market seems to be working back to where it was 8 years ago. This includes stronger rates and occupancy in the high seasons. Customers are looking for luxury, cleanliness, and excellent customer service. 6. Are there upgrades or improvements that you think are needed to ensure Aspen stays competitive in this market? Tricia McIntyre / Aspen Luxury Rentals In terms of rentals, regular maintenance and upgrades are important. Properties need to meet the demands of the visitors. Customer service is also important and needs to be at a high level. Sometimes we hear from clients that they have not received quality customer service in a shop or restaurant. Some kind of program, like a secret shopper, might be helpful to encourage high levels of customer service and to ensure the appropriate leaders in the city and chamber are aware. The city could also help by ensuring the sign code is enforced and making sure all properties receive a Short Term Rental Permit. The safety of properties is very important, and the licensure process should include information about safety, including carbon monoxide and smoke detectors. Carrie Bryant / Aspen Signature Properties Regular upgrades and maintenance is critical. Our customers expect high quality units and properties with consistency in quality. The most important thing is exceptional customer service and meeting the needs of our customers. We always ask the client how their stay was and encourage them to return to Aspen in the future. P43 I. OVERCOMING THE OBSTACLES TO UPGRADING CONDOMINIUM LODGING IN ASPEN A STUDY PREPARED BY ALAN RICHMAN PLANNING SERVICES P.O. BOX 3613 ASPEN, COLORADO 81612 920-1125 OCTOBER, 2012 P44 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 1 I. Purpose One of City Council’s ten goals for the coming year is “To examine the desirability and sustainability of preserving existing lodging and producing more lodging in Aspen”. In support of that goal, the Community Development Department produced a Phase 1 Final Report in August, 2012 entitled Aspen’s Lodging Sector: An Analysis of Existing Conditions. That report provides an overview of Aspen’s lodging sector, including a history of the City’s policies towards lodging since the 1970’s; tabulations of Aspen’s lodging inventory compiled from various sources; and the results of interviews conducted in 2012 with lodge managers, condominium and short term rental agencies, and lodge developers working in the City of Aspen. This report is the next product in the lodging study. The purpose of this report is to focus on the condominium segment of the lodging market. The City recognizes that there are a substantial number of multi-family residential condominium properties in Aspen that represent a significant portion of the community’s lodging inventory. Some of these units function solely as short term rentals while others are rented or occupied on a longer term basis. The units are contained in projects which range in age, with the first of these projects having been built more than 40 years ago, in the 1960’s. The City recognizes that some of these units need to be upgraded and re-developed, but that there are a variety of factors that can make this difficult for owners to accomplish. Considering this context, the City has asked Alan Richman Planning Services, Inc. to provide an analysis of regulatory and non-regulatory barriers that exist to upgrading and re-developing these condominium lodging properties. This report summarizes the results of that study. Included within this report are the following sections: • An inventory of Aspen’s condominium lodge properties. • An evaluation of the regulations in the Land Use Code that present obstacles to the upgrading and re-development of condominium lodging units. • A discussion of other factors outside of the City’s regulations that present obstacles to the upgrading and re-development of condominium lodging units. • Recommendations as to how the City might reduce or eliminate the regulatory obstacles to upgrading and re-development, along with approaches that might help to overcome the non-regulatory obstacles to upgrading and re-development. Consideration is given in these recommendations as to ways to ensure that as condominium units are upgraded they are not then removed from the short term rental pool. • Summaries of the interviews conducted with selected condominium lodge managers and others involved with condominium lodging. The summaries are presented as an appendix to the report but the ideas provided by those who were interviewed have been woven into the body of this report. P45 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 2 II. Inventory of Short Term Condominium Units Before delving into an analysis of the regulatory obstacles faced by Aspen’s condominium properties, it is first helpful to present an overview of the inventory of properties on which this study is focused. The City does not maintain this type of inventory data and so we looked to other sources for information we could present. In July 2012, the Aspen Skiing Company commissioned Mountain Travel Research Program (MTRiP) to conduct a report on Aspen’s short term lodging. That report, which is summarized in the table below, found that Aspen’s short term rental pool is comprised of 2,293 units, of which 932 are condominium units. This means that nearly 41% of Aspen’s short term rental inventory is condominium units, highlighting the significance of this sector in Aspen’s overall short term accommodations inventory. Hotel/Lodge Condominiums Single Family Residential B&B All Units 1,158 932 131 72 2,293 Percent of total 50.5% 40.5% 6% 3% 100% 2012 MTRiP Aspen/Snowmass Transient Lodging Inventory, July 1, 2012 An analysis of the inventory shows that a majority of the condominium units are located in the Lodge (L), Commercial Lodge (CL) and Multi-Family Residential (RMF) zone districts. Examples of such projects include the Aspen Alps, Fifth Avenue, Durant Condominiums, North of Nell and Aspen Square. These zone districts, which are located at the base of Aspen Mountain and in Aspen’s East End, allow multi-family residential units as a use by right. However, as is discussed in greater detail in the next section of this report, many of the structures in which these units are located exceed the underlying dimensional standards of these zone districts, meaning that they are nonconforming structures. There are also some multi-family units located in the City’s commercial zone districts, including the Commercial Core (CC), Commercial (C-1), Mixed Use (MU) and Service Commercial (SCI) zones. Examples of such projects include the Chateau Aspen, Park Central West and Obermeyer Place. These zone districts have historically listed multi- family residences as permitted uses. However, in recent years the City has applied restrictions to certain uses in these zones to promote them for commercial activities and to limit their use for short or long term multi-family residences (generally by permitting the use only the upper floors of a mixed use building). A small portion of the inventory is located in the City’s single-family zone districts (R-6 and R-15). Multi-family units are not a permitted use in the R-6 and R-15 zone districts, so those properties are non-conforming uses. Most of the multi-family units that are now in single family zones were developed in the 1960’s or 1970’s under a very different set of land use regulations than are in effect in P46 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 3 Aspen today. Although these properties have not since been rezoned to a zone district that permits multi-family uses, they have typically had a PUD Overlay designation applied to them in recognition of the fact that their density exceeds that permitted by their underlying single-family zoning. For example, The Gant is zoned R-15, but has had a Lodge (L) Overlay and a PUD Overlay applied in recognition of its uses and density. P47 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 4 III. Regulatory Obstacles The purpose of this section of the report is to identify some of the key provisions of Aspen’s Land Use Code that present regulatory obstacles to upgrading or re- development of the community’s short term condominium inventory. This section also sets the stage for Section V of this report, where recommendations are made for ways to overcome these obstacles. The findings in this section are based on the comments provided by the persons whom we interviewed along with the author’s own experiences in working with the Aspen Land Use Code. If there is one overall theme that emerges from this aspect of the study, it is that the current provisions in the Code do not set up a level playing field for all types of accommodations. Instead, the Code contains a strong bias in favor of traditional lodge and hotel projects. A variety of zoning incentives are offered to those who would develop or improve lodge/hotel properties, but those incentives do not also extend to short term condominium properties. Those with whom we spoke felt that this bias should be eliminated because of the valuable contribution that short term condominiums make to the Aspen community. Two of the most important contributions that were noted were as follows: 1. There is a high level of customer demand for condominium properties. During Aspen’s tourist seasons these units experience relatively high levels of occupancy. The units serve important segments of Aspen’s visitor population, these being families with children and groups of unrelated individuals who wish to stay together, neither of whom would be well served by a traditional hotel room. The persons we spoke with repeatedly pointed out that not every visitor to Aspen is looking for a traditional hotel room or can afford a single family residence, so the market needs to continue to respond to the diversity of accommodation needs that our visitors demand. They also pointed out that many other ski resorts – from Vail and Beaver Creek to Deer Valley have built these kinds of units over the last 10-20 years and so when visitors compare their vacation options on the internet, Aspen’s 30-40 year old inventory often comes up short. 2. The owners of condominium properties have made a significant investment in their units and in the community. They return to Aspen on a regular basis year after year and consider this to be their part-time home. Some of these owners have become important contributors to the community, particularly to Aspen’s non-profit organizations which they support with their attendance, charitable contributions, and in some cases by serving on the board of directors of these organizations. Following is an evaluation of specific aspects of the Land Use Code that lead these persons to conclude that the Code makes it particularly difficult to develop or upgrade short term condominium projects. P48 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 5 A. Definition of Condominium vs. Lodge Units In trying to understand the regulatory obstacles to upgrading short term condominiums, it is essential to first examine the differences in how the Land Use Code defines condominium units as compared to hotel or lodge units. At first glance, there is a fundamental similarity between the two definitions. A dwelling unit is defined as a shelter in which people reside and sleep which contains a kitchen and bathroom. Lodging units are defined as a place where people sleep that may or may not contain a kitchen. However, there are two essential differences between these unit types: • A hotel or lodge unit may not be occupied for more than thirty (30) consecutive days per year by a person who has an ownership interest in the hotel or in the unit and may not be occupied by any person (owner or non-owner) for more than ninety (90) days per year. A multi-family unit is not limited in terms of how much of the year it may be occupied by an owner or other person. • A hotel or lodge unit may contain “lock-off units” whereby portions of the entire unit may be separately rented by locking off the door between different rooms or combinations of rooms. On the other hand, multi-family dwelling units must have common un-pierced demising walls and cannot be separated into lock-off units. The first of these distinctions is a key limit that keeps condominium units from utilizing certain Code provisions that are available to hotel/lodge units. Most condominium properties in Aspen were developed at a time before the Code limited owner occupancy of short term units to no more than 30 consecutive days and 90 total days per year. The condominium documents governing these properties do not contain such restrictions and owners purchased their units with an expectation that they had the opportunity to stay in their units for a longer period of time. These owners are reluctant to give up this opportunity (even if they don’t necessarily take advantage of it) out of concern for the impact it will have on the value of the unit and its resale attractiveness. Therefore, as explained below, the dimensional and other incentives that are available to hotel and lodge units are not available to short term condominium units. Even if an individual owner were willing to have these limitations placed upon his or her unit in order to take advantage of the incentives available to lodge units, the Code is not clear whether the City would consider individual units within a multi-family complex to be hotel/lodge units unless the entire property (or at least a majority of the property) accepted the occupancy limits. Getting an entire association to accept these limits is a much more complicated problem than getting an individual owner to apply these limits to a unit. The provision addressing demising walls creates an entirely different obstacle for short term condominiums. As is explained below, there is a multi-family unit size limitation in many of Aspen’s zone districts. This limitation, combined with the prohibition on such units being locked-off, means that it is difficult for an owner to purchase two side by side units and occupy them as a single unit or as separate units as the situation demands. P49 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 6 This limit does not apply to hotel/lodge units, giving owners and other users/renters of such units greater flexibility in how they use a unit. These key differences between hotel/lodge and short term condominium units should be kept in mind when reviewing the remainder of this section of the report. B. Dimensional Limits of the Lodge Zone District As noted above, many of Aspen’s short term condominium properties are found in the Lodge (L) zone district. This zone district was substantially amended in 2005 in an effort to spur the construction of short term accommodations. However, a close examination of the amended zone district makes it apparent that this revision tilted the playing field in this zone district significantly towards traditional lodges, timeshare lodges and mixed use projects and away from pure free market multi-family projects. This can be seen most clearly in the density, floor area and height limitations of this zone district. Density Limitations: The Lodge zone district requires a minimum of 3,000 sq. ft. of lot area for each free market multi-family residential unit. This standard means that a maximum of 14 free market multi-family residential units may be built per acre. Lodge units and timeshare lodge units have no minimum lot area requirement to limit how dense a lodge project can be built in this zone. Instead, the maximum allowable density of the lodge project is a function of the allowable floor area and allowable height for a lodge project, meaning that as many lodge units can be built on the property as can fit within these two dimensions of the building. This is often much more than 14 units per acre. Floor Area Limitations: Combining the floor area limit with the density limit makes it clear how much this zone district favors lodge over multi-family development. The maximum allowable floor area in the Lodge zone for lodges, timeshare lodges and mixed use projects that include lodge units ranges from a low of 1.0:1 all the way up to 2.75:1. Where a property falls in this range is dependent upon the parcel size and whether the project contains more or less than 1 lodge unit per 500 sq. ft. of gross lot area. If a project proposes more than 1 lodge room per 500 sq. ft. of gross lot area then it is eligible for an allowable floor area of 2.5:1 or 2.75:1, depending upon lot size. These limits can be compared to the allowable floor area of multi-family residential units, which is 1:1 for projects established before the 2005 revision to the Lodge zone and 0.75:1 for projects established after that effective date (of which only 0.5:1 can be free market housing with the remainder being devoted to affordable housing). There is no floor area or density increase available in this zone as an incentive for an applicant to create smaller multi-family units. Height Limitations: The height limit for multi-family units as a single use and for lodge units or timeshare lodge units with less than 1 unit per 500 sq. ft. of gross lot area is 28 feet. This height limit jumps to 36 feet (40 feet by design review) if there is more than 1 P50 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 7 lodge unit per 500 sq. ft. of gross lot area and to 38 feet (40 feet by design review) if the resulting lodge units average 450 sq. ft. or less in size. These comparisons clearly show how the City favors lodge development as compared to multi-family development in the Lodge zone district. However, these dimensional limits can go beyond simply being a preference to one type of development and actually become an obstacle to upgrading and re-development of existing condominiums for two reasons. First, these standards mean that some existing condominium complexes in Aspen are nonconforming structures because they exceed the allowable density, floor area, or height of the Lodge zone district. For an explanation of the impact of being a nonconforming structure upon a property, please see Section III.C of this report. Second, for properties that are not nonconforming, these limits can become an obstacle because of how they constrain a property’s development potential. As an example, let’s look at a theoretical 1 acre property that an applicant wants to develop or re-develop as a multi-family condominium complex. The 1 unit per 3,000 sq. ft. density standard would limit the applicant to a maximum of 14 free market units on the property. The maximum unit size for multi-family residential units in the Lodge zone district is 1,500 sq. ft., increasable to 2,000 sq. ft. by retiring 1 TDR per unit. 14 units of 1,500 sq. ft. each results in a project of just 21,000 sq. ft. (less than 0.5:1) while 14 units of 2,000 sq. ft. each results in a project of 28,000 sq. ft. (about 0.65:1). Since the zone permits multi-family residential to build out to 0.75:1 or 1:1 in floor area, the applicant would have to use the remaining floor area for non-unit space (hallways, common amenities, etc.) or for affordable housing (which has no density limit), rather than maximizing the number of free market residential units that can be achieved on the property. C. Nonconforming Structure Provisions While it is beyond the scope of this study to evaluate the dimensional standards of each of the existing short term condominium properties in Aspen, our experience indicates that a number of these properties are nonconforming with respect to underlying density, floor area, height and other dimensional standards. This means that these are considered to be nonconforming structures. Aspen’s nonconforming structure provisions are found in Sec. 26.312.030 of the Land Use Code. Like many other communities, Aspen does not have a policy of amortization or forced elimination of nonconformities. Instead, the City’s policy is to allow nonconformities to continue and to allow normal maintenance to be accomplished to a nonconforming structure. However, Sec. 26.313.030 C states that “A nonconforming structure may not be extended by an enlargement or expansion that increases the nonconformity”. This means that if a structure is nonconforming as to floor area or density, then it cannot add additional floor area or additional units. Moreover, Sec. 26.313.030 F provides that any nonconforming structure that is purposefully demolished may only be replaced with a different structure if the replacement structure conforms to the provisions of the Code, unless the nonconformity is permitted to be replaced via special review. This means that the replacement structure might have to be built to a P51 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 8 lower floor area or height to conform to the current Code provisions. This section does provide, however, that when a structure that is nonconforming as to density is purposefully demolished it can be rebuilt to its nonconforming density if a building permit is issued for the replacement structure within 12 months of the date of demolition. These provisions present a fundamental obstacle to upgrading and re-development of Aspen’s condominium inventory. Many of Aspen’s condominiums are 40 years old or more, having been built in the 1960’s and 1970’s, before the City’s Growth Management Quota System began to control the pace of growth in Aspen. Such structures were designed in a very different economic climate than is present in Aspen today and under very different building and energy codes than are in effect today. So it is virtually certain that if a homeowner’s association (HOA) or a developer wants to demolish one of these nonconforming condominium buildings and replace it with a new, upgraded structure, they will want to replace it with some type of “different structure” and not a new structure that is identical to the old structure. It would be helpful if the Code provided some standards for what is meant by a “different structure” and if these standards offered some opportunity for a building to be modernized when it is replaced. At a minimum, these standards ought to allow cosmetic changes to the building without it being considered to be “different” It would also seem reasonable to allow changes to a building’s configuration that comply with underlying setbacks and height limits. And the Code should also offer some flexibility in response to the fact that new building and safety codes may make it impractical to replace the same structure, while green technologies may make it desirable to change a building’s appearance and functions. The City has taken some initial steps in this direction in language recently established in Sections 26.575.020 K and L of the Code. These allow the Community Development Director to offer exceptions to the dimensional restrictions to accommodate energy efficiency systems and to achieve compliance with building, fire or accessibility codes when no other practical or reasonable way to implement the desired upgrade exists. It is not clear at this time whether many members of the development community or owners of short term condominium units are aware of this new flexibility, although a few projects have recently taken advantage of these new provisions. D. Maximum Unit Size Limitations Section 26.710.190 D.12 establishes a maximum unit size limit of 1,500 sq. ft. of net livable area for a multi-family residential dwelling unit in the Lodge zone district. An applicant may increase the size of the unit from 1,500 sq. ft. to no more than 2,000 sq. ft. by extinguishing one historic transferable development right certificate. Similar unit size limitations can be found in Aspen’s commercial and multi-family zone districts. This limit can present an obstacle to upgrading and re-development of condominium units under several different scenarios. One such scenario would occur when an owner wants to purchase a unit adjacent to the unit he owns or simply wants to purchase two side by side units and combine them by installing a door between them. Combining the P52 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 9 units in this manner would, however, exceed the maximum size limit. The option of maintaining the spaces as separately rentable lock off units after they are combined does not exist for short term condominiums, since the door represents a penetration of the demising wall between the units. Another scenario in which this limit can come into play is when a property that is nonconforming as to density is replaced with a new building. As noted above, the nonconforming structure regulations require that if a building is replaced with a different structure, the new structure must comply with the dimensional and other standards of the Code. So in order to bring the new building into conformance, the applicant would have to build fewer units in the new building than are in the existing nonconforming building. One way to make this type of design financially feasible might be to allow the replacement units to be larger than the existing units; however, the maximum unit size limitation essentially takes away that option from the developer. E. Housing Replacement Regulations Section 26.470.070.5 of the Code contains the City’s regulations addressing the demolition or re-development of multi-family housing. These regulations provide limitations on combining, demolition and conversion of existing multi-family housing units so as to mitigate the displacement of working residents that can occur from those activities. The regulations offer two options for mitigation – either replacement of 100% of the demolished free market units with resident occupied affordable housing units or replacement of 50% of the units, bedrooms and net livable area with Category 4 affordable housing units. There are a number of exemptions to the housing replacement regulations. One such exemption which was recently re-introduced into the Code applies to multi-family housing units “which have been used exclusively as tourist accommodations or by non- working residents”. Documentation (occupancy records, leases or affidavits) may be required to demonstrate that the unit has never housed a working resident. While this exemption will allow most condominium units that are rented on a short term basis to be re-developed or combined without triggering the mitigation requirement, it is still viewed by some as too restrictive to address all of the circumstances that may arise. Some of those we interviewed mentioned that in their experience some units have had isolated occupancy periods by a resident over a history of otherwise uninterrupted visitor occupancy. They suggested that some flexibility should be added to this provision to allow the City to examine the overall occupancy history to determine whether such isolated occupancies by a resident should trigger the mitigation requirement. In other words, they suggest that rather than having a simple yes/no kind of regulation, the applicant should be given the opportunity to demonstrate to the City that the unit in question has primarily been a tourist unit and its isolated occupancy by a working resident should not over-ride the fact that it has generally been a tourist unit. P53 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 10 F. Growth Management Regulations The development of new free market units within a multi-family or mixed use project requires an applicant to obtain a Growth Management allotment. Having to compete in the Growth Management process introduces a level of uncertainty to the development review process. The uncertainty comes from two aspects of the Growth Management system. First, the City awards just 18 free market residential allocations per year in its competitive scoring process. Applications may only be submitted 2 times per year – on February 15 and August 15. The score received by a project determines in which order the application is awarded its allocations. So an applicant is uncertain as to whether and when he may receive an allotment to proceed with the project. Points are awarded to residential projects based on exceeding the affordable housing mitigation requirements of the Code, providing larger affordable housing units than the Code would otherwise require, or receiving LEED certification for the project. A project can receive no points and still be considered for an allocation, but if other projects receive points and use up the 18 allocations then the project would not proceed and would have to be re- submitted for the next year’s competition. So applicants are also uncertain as to what level of commitment they must make to be successful, making it difficult to evaluate the financial feasibility of a potential project. Finally, it should be noted that expansion of the net livable area of existing free market units within a multi-family or mixed use project is also subject to Growth Management review. This type of activity is not subject to the competition process, but it does require the applicant to provide net livable affordable housing area equivalent to 30% of the net livable free market housing area that is added to the project. G. Development Fees and Other Exactions The City has made revisions to various elements of the Land Use Code in recent years to ensure that development pays its own way with regard to its impacts on the community. The adopted park impact fee has been revised, a new Transportation Demand Management/Air Quality Impact Fee has been imposed and the school land dedication requirements have been revised. The Affordable Housing cash-in-lieu fees have increased on an annual basis. Tap fees for the City’s water system and the Aspen Consolidated Sanitation District are considerable. In addition, the fee structure the City applies to its land use, zoning and building permit reviews has been reformed. All of these actions have added to the cost of development in Aspen. One of the persons we interviewed noted that the cost of exactions has risen dramatically in recent years and now can equal 10% of the cost of a project. When these new fees are considered together with the lower per square foot sale prices that can be achieved due to the down-turn in the local real estate market, it is easy to see why some say that it has become more difficult today to make the numbers work to make this type of project economically feasible. P54 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 11 One of the more significant new costs that has been imposed in recent years is not in the Land Use Code but is instead found in other Code sections addressing the requirements of the Urban Runoff Management Plan (URMP) and the City’s Stormwater Fee In Lieu of Detention. In 2011 the City amended these provisions as shown in the following table. The table shows that the requirements imposed on what it classifies as minor projects are relatively straightforward. Major projects must comply with the following: If a project adds or disturbs more than 1,000 sq. ft. of impervious area but the disturbed or added impervious area represents less than 25% of the site, then the disturbed or added impervious area is required to detain runoff to the historic undeveloped flow rates. If the property is unable to provide this detention on-site then it is required to pay the fee in lieu of detention for the disturbed or added area. If a project adds or disturbs more than 1,000 sq. ft. of impervious area and the disturbed or added impervious area represents more than 25% of the site or more than 50% of the existing structure, then the entire site is required to detain runoff to the historic undeveloped flow rates. If the property is unable to provide this detention on-site then it is required to pay the fee in lieu of detention for the disturbed or added area. P55 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 12 These drainage requirements can have major implications for the re-development of condominium projects. In many cases the re-development of a multi-family complex will add more than 1,000 sq. ft. of impervious area and disturb more than 25% of the total developed area of the site. If doing so places a project in the position of having to go back and detain stormwater based on the site’s original pre-development status, then it can make re-development or a small addition a significantly more expensive proposition or can even make such projects unfeasible. This approach to regulation can be contrasted to the way that the Building Codes are applied to re-development projects. During the course of the interviews it was suggested by several persons that it has been their experience that when individual units or an entire building are brought in for building permit approval, the project can be de-railed when the Building Department applies unanticipated Code provisions to the project (such as requiring the installation of sprinklers or similarly costly improvements to common areas). However, when we met with the Building Department to discuss this issue, we found that in fact, the Building Codes allow the staff to look at an upgrade project and only require compliance for those portions of the project that the applicant chooses to alter. Unlike the drainage provisions, where crossing a threshold may mean the entire project must be addressed, the Building Codes can be applied selectively to upgrade individual units or areas of a building. So, for example, if an applicant proposed to add some new units on top of an existing condominium building, the new units would have to be fully accessible under current codes but the existing floors below the new units would not have to be modified to meet current accessibility standards. P56 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 13 IV. Non-Regulatory Obstacles The purpose of this section of the report is to identify some non-regulatory obstacles to upgrading or re-development of the community’s short term condominium inventory. The author of this report does not have personal experience in working with these kinds of non-regulatory obstacles, so the findings in this section will focus on the comments provided by the persons whom we interviewed. The non-regulatory obstacles can be organized into two basic categories. One set of obstacles is a function of the fact that condominium properties are run by homeowner’s associations. Because any association will be comprised of individuals with different financial and personal motivations and limitations, getting an association to reach consensus to take action to improve a property can be a difficult task. The second category of obstacles is a reflection of the trying economic climate in which most of us are operating these days. One outfall of the economic downturn from which the Country has been slowly emerging is that it has become more difficult for some condominium complexes to raise the resources to fund upgrade projects than it might have been in the past. Following is a brief summary of each of these types of obstacles. A. Homeowners Associations Many of Aspen’s condominium associations are comprised of a mix of owners ranging from original buyers to new owners. Each of these owners has a different financial basis in their unit. The owners also had different reasons for buying their unit. For some the unit is primarily an income-producing property while for others it is intended for personal or family use. Some of the units in short term condominium complexes are owner-occupied on a year round basis. Some current owners bought their unit in the 1960’s or 1970’s, when prices were quite modest as compared to today. These owners may not fit the common perception that Aspen’s visitors are quite wealthy; they may simply be middle class persons who own a valuable asset. While their unit has likely gained significant value since its purchase, this type of owner may not have the disposable income available to put into a special assessment to upgrade the complex. In addition, some of these owners have reached the stage in life where they are not interested in giving up their unit for a year or two while a re-development project takes place. One person we interviewed suggested that an association will not be ready to tackle an upgrade project until the majority of owners in the association are persons who have paid current market prices for the unit. This person also pointed out that owners who are looking to sell their units are generally more willing to invest in an upgrade because they believe they will be able to recoup their investment. P57 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 14 Another person suggested that some of the older complexes may not have professional assistance running their associations and they may not be used to working with lawyers, planners and developers. As a result, they may not be aware that State statutes (the Colorado Common Interest Act) state that an association only needs 2/3 approval by its members to take action. Some associations have higher requirements in their by-laws and they aren’t aware that State law over-rides their requirements. B. Economic Climate The current economic climate has made it much more difficult to get HOA approval of special assessments to improve complexes. One person we interviewed stated that many owners today are “loathe to incurring special assessments”. Another person we spoke with stated that this is particularly true if there are units in the complex that have owners who are under water. He felt that the overall economy is the most significant factor that is stopping upgrades from occurring today. It was suggested that unless a developer is willing to come in and take the risk for them, many owners are unwilling to even put up the funds to evaluate what issues they would have to overcome to make improvements. But because many properties are nonconforming and don’t have floor area or density remaining to be developed, some associations have nothing to offer to a developer to induce him to come in and upgrade the complex. Another person we interviewed stated that lenders view condominiums and condominium hotels as a higher risk than single family residences. This is because an owner might be more willing to walk away from an investment in a condominium property than an investment in a home. So lenders require greater down payments or offer other terms that are less favorable to those who are buying into condominium properties. These added costs obviously leave owners with less money in their pockets to put towards improvements to their units or to the complex. C. Recommendations to Reduce Non-Regulatory Barriers Because of the nature of the issues dealt with in this section, the City’s role in addressing these obstacles is not nearly as direct as with the regulatory obstacles. Clearly the City is not in a position to change the economic climate or to affect the way homeowners’ associations operate. Based on the comments we received, we believe that the most important thing the City can do is to make it clear to the homeowner’s associations that the City is interested in seeing these units get remodeled and upgraded and is not erecting barriers to doing so. As noted elsewhere in this report, the common perception among those who operate condominium complexes or own these properties is that the City’s primary interest is in promoting hotel development, not condominium development or upgrades. In fact, one condominium manager indicated that he anticipated that going in front of the City with an application to upgrade his complex could be an extremely challenging experience. P58 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 15 One way to change this impression would be for the City to make it easier for owners to accomplish remodels or upgrades that will result in energy efficiency or green building. Many older complexes have highly inefficient buildings and it would seem logical that the City would welcome these kinds of upgrades, not make them hard to accomplish. The City should also look for ways it can inform homeowners associations and condominium management companies about the flexibility that has been introduced into the Code that permits the staff to allow a project to exceed dimensional standards in order to comply with building and safety codes and energy efficiency standards. Going one step further, this flexibility should be extended beyond what is currently allowed to permit these kinds of upgrades to existing nonconforming structures (see Section V below for more discussion of this increased flexibility). Several of the persons we interviewed took this thought another step further. They suggested that the way that the City ought to change its basic way of thinking about proposals to improve condominium lodging properties. Today, it often seems like the only “currency” an applicant can offer to obtain a development approval is to pay exactions (transportation, affordable housing, etc.) or to offer public amenities (trail connections, open space dedications, etc.). But these individuals believe that creating a better accommodations experience for guests and owners needs to be recognized as being of benefit to the community and should be sufficient rationale to get projects approved. It was also suggested that self -managed complexes are ripe for an education process by the City or by management companies. The City could work together with condominium management companies, the Chamber of Commerce and the Board of Realtors to develop a program aimed at educating associations as to the steps involved in undertaking a unit or property-wide upgrade or the steps involved in short terming their unit. A final comment we received that is not directly relevant to this study but that seemed quite meaningful to report is that the City should require reliable, high speed cellular/wi- fi service as a condition of any franchise agreement the City enters into. It was noted that guests expect that they will be able to use their mobile devices to do work or get internet access in their rooms and that if this service is not present they will not return to that complex or to this resort. However, many properties are not currently equipped to offer this service. It was suggested that the City should ensure that bandwidth is made available whenever it has the opportunity to work with a service provider, particularly when a new franchise agreement is being negotiated. P59 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 16 V. Recommendations to Reduce or Eliminate Regulatory Obstacles Thirty years ago the City of Aspen undertook a study of its short term accommodations. The 1982 Short Term Accommodations Report was an effort by the City to evaluate why the overall accommodations inventory was shrinking and what could be done to improve the quality of lodging in the City. One major conclusion of that study was a recognition that zoning actions taken by the City in the 1970’s had made many of Aspen’s smaller lodges nonconforming and had left many such properties “frozen in time”, unable to improve their facilities at a time when other ski resort communities were rapidly building up their inventory. As a result of that study, the City created the L-3 (later changed to LP) zone district which allowed minor expansion of these lodges and helped to generate several notable lodge remodels and expansions in the 1980’s and 1990’s. Aspen may be reaching a similar point today with some of its short term condominium properties. Cosmetic upgrades have been successfully accomplished for many of these properties. But there are a significant number of condominium properties at the base of Aspen Mountain that are 40 years old or more and may be approaching the end of their useful life. Some of these properties are nonconforming with respect to floor area, density or height and therefore face considerable obstacles if they are to be re- developed and remain a part of Aspen’s short term inventory. This section presents a series of regulatory reforms the City should undertake to make upgrading and re-development of short term multi-family residential properties less daunting. It is interesting to note however, that a recommendation contained in the lodging section of the recently adopted 2012 Aspen Area Community Plan (AACP) would not only suggest that the City not explore these types of reforms, but that it should instead reinforce the Code’s bias in favor of hotels and lodges and away from multi-family residential uses in the Lodge zone district. This recommendation, which can be found under the general policy guidance of “Minimize the further loss of lodging inventory”, reads as follows: “Explore amending the City Land Use Code to eliminate the provision for new multi- family free market residential as the sole non-lodging use on a parcel in the Lodge Zone District.” This recommendation demonstrates the potential uphill battle we face in presenting these recommendations and getting them implemented. Nevertheless, following are some reforms we believe the City should consider. A. Amend Lodge Zone District to Level the Playing Field There are a number of approaches the City could take to place short term multi-family condominiums on a more level playing field with hotels and lodges in the lodge zone district. The most aggressive approach the City could take would be to allow multi- family residential projects to achieve a maximum floor area and height that is closer to P60 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 17 that which is permitted for lodge properties . Today there is a significant gap between these two types of projects, making it difficult for existing properties to be re-developed. The way this could work would be to keep a base floor area of 1:1 for multi-family projects with a relatively large average unit size (say units of 1,250 to1, 500 sq. ft.). Projects with a smaller average unit size (say 1,000 to 1,250 sq. ft.) would be allowed a floor area of 1.25:1 and projects with an average unit size of 1,000 sq. ft. or less would have an allowable floor area of 1.5:1 A similar approach to height limits could also be applied based on unit size. (Note: These numbers are meant to be examples of how this approach could work and are not intended to be specific zoning recommendations.) This approach would be consistent with the way the City treats lodges and hotels in this zone (smaller-sized units are allowed the greater floor area and height). A second change that could be made is to reduce the minimum lot area requirement in the Lodge zone district. This standard is currently 1 unit per 3,000 sq. ft. ft. and should be reduced to 1 unit per 1,500 sq. ft., so applicants can more fully utilize their allowable floor area to develop more units per area of land. This will further encourage applicants to develop units that are at or below the maximum unit size. If the City is not comfortable amending the Lodge zone district to promote this kind of development, then an alternative approach would be to create a new Tourist Multi- Family (TMF) zone district to be applied to condominium properties at or near the base of Aspen Mountain. This would allow the Lodge zone to be tailored to traditional lodge and mixed use lodge/condominium projects and provide a distinct zone for the pure residential condominium projects. The TMF zone should include the same type of density, floor area and height recommendations described above in order to incentivize development of relatively smaller condominium units. Adoption of a new zone district for Aspen’s short term condominium properties may seem like somewhat of a radical approach to suggest. However, in the past, the City has relied on the PUD process to resolve the variety of zoning “ills” that these properties suffer from. By placing a PUD on the property, the applicant is given the opportunity to vary from the underlying zone district limitations as part of a development proposal. The main problem with the PUD approach is that since most of these properties were developed many years ago, virtually none of them have recorded PUD Development Plans in place. This means that if an association is planning a minor or relatively modest development proposal, it will be subject to the City’s relatively simple PUD Amendment process while if the association proposes a more ambitious development plan it will have to go through the full PUD process. In the amendment process the applicant may be required to prepare a survey of the property and document all of the existing conditions in order to determine which dimensions (setbacks, height, floor area, etc.) require PUD variations. For some properties, which contain just a single building on a small lot, this may not be an onerous condition. But for some of the larger properties such as the Alps or the Gant, producing a survey of the complex and analyzing existing conditions (height and floor area) can be a very costly endeavor. P61 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 18 It can be difficult for some associations to decide to process a PUD, particularly when PUD is known to be a discretionary review process, leaving applicants without any certainty that what they propose will be acceptable to the City and not knowing what types of tradeoffs may be required to make their application successful. Plus, for properties that are nonconforming as to use (that is, a multi-family use in a single family zone) the PUD process doesn’t offer any relief since PUD’s can only be used to vary dimensional standards, not uses. So if applicants were zoned to use through a TMF zone district, at least they would enter the process knowing that theirs is an allowed use and that they have been determined to be an appropriate use in their neighborhood, not an “anomaly” that requires some variations just to fit in. Furthermore, if the dimensions of this new zone are properly calibrated to the range of existing buildings that would receive this zoning designation, then the new zone could make many nonconforming structures conforming, thereby simplifying their opportunities to be upgraded. B. Allow Short Term Condominiums to Maintain their “Hybrid Personality” If the City does not support the idea of amending the zone district standards to create a more level playing field, then we suggest that the Code should be revised to recognize that many of Aspen’s condominium properties are “hybrids” that have both a lodging and a residential personality. Under today’s regulations it appears that unless the owners are willing to limit the occupancy of their units as stated in the definition of a lodge unit, they are not able to take advantage of the incentives offered to lodges. We believe that this should not be an all or nothing form of regulation. In other words, the Code ought to state that if the applicant provides appropriate assurances that the preponderance of the units (say 2/3 or ¾ of the units) will be in the short term rental pool, that should be sufficient to obtain the higher floor area, height and other incentives that lodges enjoy over multi-family condominium projects. The actual units which are put in and taken out of the pool might vary from year to year, but the applicant would agree (through an audit or similar mechanism) to demonstrate that at no point did the percentage of units in the pool fall below this threshold. This would recognize that some owners will simply never agree to limit their occupancy of their units, but that if most of the units do so, the property should be considered to be a short term and not a residential project. C. A More Flexible Approach to Nonconforming Structures and Dimensional Standards The City already has a flexible set of regulations for nonconforming structures that allows an existing structure to be expanded or enlarged as long as doing so does not increase the degree of nonconformity (that is, the building can’t extend further into the setback). This allows viable structures to be remodeled in an effective manner. But when a structure has reached the end of its useful life and needs to be replaced, the nonconforming regulations become much more restrictive. We believe it is simply too restrictive to say that the only time a replacement structure can be different than the nonconforming structure is when the replacement structure is brought into conformity. P62 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 19 We suggest, therefore, that a more flexible approach be adopted that allows for cosmetic improvements to be made and for changes to the configuration to be made, as long as the changes do not extend a nonconformity. In other words, the structure should be able to keep its underlying nonconformity and expand, as long as the portions where it expands do not result in a greater nonconformity. The provisions in Sec. 26.575.020 K. and L. represent good first steps toward allowing some flexibility to exceed dimensional requirements to achieve energy efficiency and building code compliance. However, the Code is somewhat ambiguous as to how much flexibility the staff is actually authorized to offer as these two sections require the staff to find that “the visual impact of the exemption is minimal”. To address this ambiguity, some communities authorize what are called “administrative modifications” where an underlying zoning standard can be modified by a specified amount (typically 5%, 10% or 20% of the underlying dimensional standard) without having to go through a PUD process or a variance process. Sections K. and L. are a form of administrative modification, although without the numerical guidance as to by how much a standard can be varied. The City might consider authorizing a 10% or 20% modification of the floor area or height standards in order to allow the upgrading and re- development of its short term accommodations inventory. The authority for the modifications would be given to P&Z (or, if this is politically unacceptable, then to City Council) in a one-step review process. The applicant would have to demonstrate that the modification would result in a better quality project for owners and guests and would also be subject to other typical land use review standards (such as the addition causes minimal visual impact; the project is compatible with neighboring properties, etc.). We also suggest that Sec. K. and L. might provide a good starting point for other ways the City might create some flexibility for the improvement of short term condominiums. One suggestion we heard during the interviews was that when a building is being reconstructed, if the owners had the ability to add just 1’ in floor to ceiling height on each level of the building, which could be a sufficient incentive for them to upgrade the property. Similarly, if a property does not have a spa or hot tub on-site, the only opportunity for this to be achieved might be on the roof. But both of these types of options would typically exceed the underlying height requirement and could not occur. Today, the only way that such flexibility can be obtained is via the PUD process, which offers the ability to obtain variations from underlying zoning standards. The problem with the PUD approach is that projects to upgrade existing condominium complexes don’t have the kinds of public amenities to trade off to obtain approval from the City for the zoning variations they need. PUD is also a rather complex process, requiring a relatively involved type of land use application and a multi-step review process in front of the Planning and Zoning Commission and City Council. While we recognize that it is not likely that the City would allow the staff to sign off administratively on these kinds of improvements, there ought to be a simpler way to provide some flexibility than through a full PUD process. A Board of Adjustment variance is certainly not the answer to this problem, as such variances require demonstration of a physical hardship which often P63 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 20 cannot be done. So this might also be another place to apply the 10% or 20% modification technique that is described above. A final aspect of the dimensional standards that should be considered for revision is the maximum unit size limitation. While there is good logic to why the City would impose this type of limitation of new development projects, the rationale begins to break down when it is also applied to units that pre-date the standard and which are made nonconforming by this one provision. This limitation can prevent an owner from combining two units that are side-by-side, even if the owner were to agree to maintain the units as two separate lock off units in the rental pool. And it places a nonconformity stigma on existing units that may make them less easily financed. It is suggested that the City consider limiting the applicability of this provision solely to newly developed units and not applying it to existing units or to units that are combined but which the owner agrees will be rented as separate lock off units. D. Fine-Tune the Multi-Family Housing Replacement Regulations The City’s multi-family housing replacement regulations already contain an exception for units which have been used exclusively as tourist accommodations or by non-working residents (26.470.070.5.8.c). While this provision will take care of most of the issues that might arise in the re-development of short term condominium units, it will not address those units that may have had an isolated instance of rental to a local worker but whose overall occupancy has clearly been as a tourist accommodations unit. The most egregious example of which we were told was a tourist unit that was occupied by an employee while his own unit was being repaired after flooding damage. The regulation should be fine-tuned to allow an applicant to demonstrate that such isolated occupancies should not mean that the unit is ineligible for this exemption. E. Reconsider Development Fees and Exactions As mentioned in Section III of the report, there have been changes in the impact fees, fees-in-lieu, and other on-site exactions that are required of development. While it is important to ensure impacts are mitigated, the changes have resulted in a sometimes significant cost to development. The City may wish to consider examining exaction and fees in general to determine if any changes should be made as it related to condominium development. One area that was raised by a number of interviewees is the cost and complexity that is added to projects in order to meet the City’s drainage and building requirements. As the table included in Section III of this report shows, when a development crosses a certain threshold and is classified as a “major project”, its drainage requirements or required fee-in-lieu of detention are no longer based solely on the increment of new growth or disturbed area but instead are based on the drainage requirements of the entire site. This can become an obstacle to condominium improvements, and is worth examining within this context. P64 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 21 APPENDIX SUMMARY OF INTERVIEWS I. Tom Todd II. Chuck Frias III. Donnie Lee IV. Galen Bright V. John Corcoran VI. Sunny Vann P65 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 22 CONDOMINIUM LODGING INTERVIEW: TOM TODD 1. Are you/your owners interested in a significant update, remodel, or redevelopment of all or part of your condominium complex or an individual unit? Why or why not? Not applicable. 2. Do you have any difficulties renting your condominium unit for short-term stays? If yes, why do you think that is? Not applicable. 3. If you did invest in a significant update, remodel, or redevelopment, would the property be more likely or less likely to be rented short-term? Would the upgrade be done so you could keep it in the rental pool or because you want to remove it from rental? Not applicable. 4. Have you identified specific City rules or requirements that make the update, remodel, or redevelopment of your condominium complex difficult? We are most interested in hearing about land use and building regulations (zoning limits, multi-family replacement regulations, growth management etc.) but if there are other concerns please let us know. Floor area and density regulations make many of these buildings nonconforming. Without floor area or density the HOA has nothing to offer to a developer to induce him to come in and upgrade the complex. Maybe the City could create an incentive, like exists for properties on the historic inventory, that offers a bonus in exchange for upgrades to short term rental units. One approach might be to permit development to occur in exchange for some percentage of the units in the complex being placed in the short term rental inventory for a specified period of time. Not all of the units, but a significant percentage because “all or nothing will not sell”. 5. What issues, not City related, present an obstacle for the update, remodel, or redevelopment of your condominium complex? (for instance large HOA, or HOA that does not agree or owners who have no interest in spending the money necessary to upgrade or have other financial issues) Older associations are comprised of a mix of owners ranging from original buyers to new owners. Each has a different financial basis in their unit; each has a different interest – income versus personal use. Most owners are “loathe to incur special assessments”. Unless a developer is willing to come in and take the risk, many owners P66 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 23 are unwilling even to study the issue of what they would have to overcome to make improvements. Plus some of them are at a point in life where they are not interested in giving up their unit for a period of time while it is redeveloped. The Colorado Common Interest Act says association needs just 2/3 approval to take action. Some associations have higher requirements in their by-laws and they aren’t aware that State law over-rides their requirements. Smaller, older complexes may have owners who are not extremely wealthy but instead are more “middle class”. These people are not used to working with lawyers, developers, etc. and may not have professional assistance running their associations. Sale of general common elements such as airspace to a developer can result in capital gains and taxes for the association. The association may be able to get around this if the developer instead puts the money back into the complex as mitigation for the development rather than paying cash to the association. 6. What role, if any, do you think the City ought to play in assisting the redevelopment or remodel of older condominium projects? Create incentives so that owners can take advantage of remodels or upgrades that will result in energy efficiency or green building. The older complexes are highly inefficient. City Hall needs to welcome this, not make it hard to do. Encourage management companies to develop a program where they educate associations as to “how to” complete an upgrade or how to short term their unit. Self- managed complexes are ripe for an education process by the City or by management companies. Get the word out that the City is receptive to projects that upgrade existing properties. Consider Ordinances 30/48 to be examples of how not to do it. Instead of City establishing the policy, let the management companies and HOA’s take the lead. P67 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 24 CONDOMINIUM LODGING INTERVIEW: CHUCK FRIAS 1. Are you/your owners interested in a significant update, remodel, or redevelopment of all or part of your condominium complex or an individual unit? Why or why not? Many properties that he works with have done a face lift. Some properties (such as Fifth Avenue and Durant Condominiums) are really struggling with a variety of issues, including lack of HOA consensus on whether/how to address their needs and a myriad of zoning obstacles (properties are nonconforming in various respects). 2. Do you have any difficulties renting your condominium unit for short-term stays? If yes, why do you think that is? The problem with many condominium units is they offer a product that is no longer competitive in the market compared to newer resorts. Our condominiums were mostly built in the 1960’s and 1970’s and they have to compete with condominiums in Beaver Creek and Deer Valley that may only be 10 years old. A 900 sq. ft. two bedroom unit with 8.5’ ceilings just can’t compete. For many years they have tried to make up for the physical deficiencies by offering higher levels of service by the management agency. This works for guests who have been coming here year after year. But at some point newer customers will find a better product elsewhere. For the last 25 years the traditional high month of March has declined. Our dated product maybe just one reason why this has occurred. 3. If you did invest in a significant update, remodel, or redevelopment, would the property be more likely or less likely to be rented short-term? Would the upgrade be done so you could keep it in the rental pool or because you want to remove it from rental? Owners who invest in a significant upgrade of their unit are less likely to keep their unit in the rental pool. He suggested that as many as half of the units have been removed from the inventory in recent years because owners don’t like the wear and tear on their units or prefer to be able to use the unit whenever they want to. He also noted that fractional units have become the hottest beds that they can rent (because they are in newer properties and have the desired amenities) and have seen the greatest revenue growth in recent years. An owner may have bought a 6 week (1/8) share and only be able to be here for part of that time so they rent out the other weeks. 4. Have you identified specific City rules or requirements that make the update, remodel, or redevelopment of your condominium complex difficult? We are most interested in hearing about land use and building regulations (zoning limits, multi-family replacement regulations, growth management etc.) but if there are other concerns please let us know. P68 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 25 Properties need to be able to add the simple amenities that the market demands. Four of the most basic improvements that the current Aspen condominium inventory lacks are elevators, adequate parking, spa/pools, and reliable cellular or wi-fi service. When the Durant Condominiums wanted to add an elevator to improve its very awkward external access issues, they were forced to go to the Board of Adjustment because the property was already nonconforming. It was difficult to prove that they had a hardship – they really just had a need to improve their building access for their guests. Similarly, if a property doesn’t have a spa, the best opportunity they have might be on the roof. But that might violate height restrictions. The City ought to create some flexibility in its rules so that improvements to these properties that violate underlying dimensional limitations don’t trigger variance application procedures. Applicants need a simple procedure that looks at whether it is an appropriate improvement, not whether the applicant has a physical hardship. 5. What issues, not City related, present an obstacle for the update, remodel, or redevelopment of your condominium complex? (for instance large HOA, or HOA that does not agree or owners who have no interest in spending the money necessary to upgrade or have other financial issues). Some associations have owners who bought their properties many years ago and the investment they made is well less than the value of the property today. These people are the most reluctant to incur new assessments to improve the property. It is only when an association becomes dominated by owners who have paid current market prices to purchase their units that the association has the will to undertake an improvement project. Also, owners who are looking to sell their units are generally more willing to invest in an upgrade because they will be able to recoup their investment. 6. What role, if any, do you think the City ought to play in assisting the redevelopment or remodel of older condominium projects? The City should require reliable, high speed cellular/wi-fi service as a condition of any franchise agreement they enter into. Guests will not accept that they cannot use their mobile devices to do work or get internet access. A large bandwidth must be made available. The City needs to accept the improvement of these buildings as an amenity to the community, not as growth or development. If these properties need to pay current entitlement fees to the City just to remain competitive they will be unable to do so. Many properties have limited land area, are already built to their maximum development potential or are actually nonconforming. So they don’t have open space to offer or room to provide affordable housing. In fact, they may need some development potential just to make the numbers work. Ideally, the City might create some flexibility in its rules to let them improve. For example, if a property could add 1’ in height to each floor in the building that would improve the value of the unit. Of course, allowing additional floor area or density would also provide the incentive to improve the property. P69 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 26 CONDOMINIUM LODGING INTERVIEW – DONNIE LEE 1. Are you/your owners interested in a significant update, remodel, or redevelopment of all or part of your condominium complex or an individual unit? Why or why not? The Gant has an incentive program for owners to upgrade their units. Completing an upgrade means units get rented more often and in a higher tier (greater income). Virtually all of the units in the complex have completed an upgrade. The Gant has a list of desired improvements and guides the owners through the process, including helping to choose the designers to use. In addition, the complex completed a significant exterior upgrade in 2004-2008, including changes to railings, elevators, etc. and significant landscape improvements. He feels the permitting process for that upgrade went smoothly. 2. Do you have any difficulties renting your condominium unit for short-term stays? If yes, why do you think that is? Overall demand in Aspen remains good so there are No difficulties; high occupancy rates. However, the recession has applied downward pressure on both occupancy and rates. 3. If you did invest in a significant update, remodel, or redevelopment, would the property be more likely or less likely to be rented short-term? Would the upgrade be done so you could keep it in the rental pool or because you want to remove it from rental? Investment was necessary because as the infrastructure ages it is necessary to modernize to maintain quality and value for the customer. Aging buildings need the opportunity to modernize to meet consumer demands and capitalize on new technologies that improve efficiencies for both energy and operations. Ski industry has changed. Guest used to be a group of people that would be comfortable sharing rooms and walking to the lift. Now people have high expectations for services (vans are critical) and quality accommodations. Lastly, the unit owners desire to keep their units in the rental pool as long as there is a return on their investment and an offset to the annual costs of ownership. Without performance that satisfies this criteria owners pull the units out of the rental program and the community loses bed base. 4. Have you identified specific City rules or requirements that make the update, remodel, or redevelopment of your condominium complex difficult? We are most interested in hearing about land use and building regulations (zoning limits, multi-family replacement regulations, growth management etc.) but if there are other concerns please let us know. P70 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 27 For The Gant, Primary problem is they have an underlying residential (R-15) zoning but they are in the lodging business, and truly The Gant is a hybrid property Meaning it is a multi-family property and owners use it as such, for extended periods, etc, but the property operates as a lodge. IT does not fully fit into either category, but given the long term and consistent success of the property perhaps a new category should be developed that embraces and encourages such an operation. Property was listed as a potential historic resource but were able to get it removed from that list. Building Department can raise unexpected Code issues when a remodel is proposed that make proceeding more difficult and costly. Gave example of an existing fireplace triggering a new air vent installation. Should not apply to older buildings as they already have extensive air infiltration. Current IR photos demonstrate this. 5. What issues, not City related, present an obstacle for the update, remodel, or redevelopment of your condominium complex? (for instance large HOA, or HOA that does not agree or owners who have no interest in spending the money necessary to upgrade or have other financial issues). Has 143 owners, each with his/her own opinions. He has owners who bought 30 or 40 years ago and view this as their winter or summer retreat who are not interested in making upgrades for the rental market. (this is minority of ownership) Even has some owners who live in their units year round. The Gant is fortunate to have a very professional and big picture focused Board and there is strong collaboration with both owners and management. Some HOAs (this is a generalization) do struggle with Board members who focus on resolving their individual situation rather than on solving problems that are relevant to the entire HOA or entire building. The biggest obstacle for continued improvement is ability to provide ROI. Construction costs are extraordinarily expensive, $400 – 500 per sq ft including all costs of construction, design and furnishings. Additionally aging infrastructure and the need to continue to make older properties safe requires costly upgrades to common areas. These types of improvements have been embraced at The Gant and continued cooperation and collaboration with various city departments is vital for continued success. 6. What role, if any, do you think the City ought to play in assisting the redevelopment or remodel of older condominium projects? City should recognize how successful the condominium hotel properties have been and support what they do. These properties are less expensive than luxury hotels and have very high occupancy throughout the year which provides significant tax income to the P71 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 28 City. Moreover, the owners of these properties contribute to Aspen in so many ways – they are members of/contributors to local non-profit organizations and various arts groups. A complex like the Gant is really a hybrid of a condominium lodge and a residential condominium complex. The City should not force all of the owners in the complex to be part of the short term rental market as a condition of providing development options to the property. The City needs to recognize that these properties will always have this hybrid personality and not try to tie the hands of the owners by forcing them all into a single box. P72 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 29 CONDOMINIUM LODGING INTERVIEW: GALEN BRIGHT 1. Are you/your owners interested in a significant update, remodel, or redevelopment of all or part of your condominium complex or an individual unit? Why or why not? We recently completed a major renovation to the South Point building where I live and serve as a board member. Individual unit interiors are often remodeled after the they trade to a new owner. He leases several condominium units for his clients. Most of his clients are not interested in nightly rentals, just monthly or seasonal. If and when they do remodel they typically are not interested in renting after they have remodeled. 2. Do you have any difficulties renting your condominium unit for short-term stays? If yes, why do you think that is? As explained above, he focuses on renting the unit for a month or for the seasonNightly rentals are more popular at “condo-hotels” type buildings (Aspen Alps, North of Nell, Aspen Square, Gant, Lift One) which are set up to be short termed (because it has a front desk and/or a web-site and other support services such as on-site maintenance and staff). Most of these rentals are done in house, or with a rental agency that focuses on nightly rentals along with property management. 3. If you did invest in a significant update, remodel, or redevelopment, would the property be more likely or less likely to be rented short-term? Would the upgrade be done so you could keep it in the rental pool or because you want to remove it from rental? His clients who accomplish a really high end upgrade will typically remove the unit from the rental inventory. 4. Have you identified specific City rules or requirements that make the update, remodel, or redevelopment of your condominium complex difficult? We are most interested in hearing about land use and building regulations (zoning limits, multi-family replacement regulations, growth management etc.) but if there are other concerns please let us know. In his experience, renovations can trigger building code requirements (such as sprinkler system upgrades or installations) that make a project expensive to complete. For example, if a major common element, such as a hallway or parking garage, is involved sprinklers may be required. He agrees with the code requirements for bringing a building into compliance for safety reasons, but recognizes that it does add to the cost of a major renovation and may delay the project until the HOA can raise more money. P73 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 30 He owned 4 side-by-side units in a condominium complex that he wanted to combine into 2 units and upgrade. This triggered the multi-family replacement regulations, because changes to the City building codes in 2007, which would have required significant affordable housing mitigation to occur. This killed the project he had planned and caused him to have to sell off the units individually. 5. What issues, not City related, present an obstacle for the update, remodel, or redevelopment of your condominium complex? (for instance large HOA, or HOA that does not agree or owners who have no interest in spending the money necessary to upgrade or have other financial issues). Lenders view condominiums and condominium hotels as a higher lending risk than single family homes because an owner who gets into financial difficulty is more likely to walk away from that type of investment than a home they own and live in. So in today’s lending market, these properties get saddled with higher down payments and higher interest rates which leave the owners with less money to improve their properties. The current economic climate and decreased property values has made it much more difficult for an HOA to collect special assessments to for improvements to complexes, because owner don’t want to spend the money, or simply do not have the money to spend. This is particularly true if there are units in the complex that have owners who are under water. This is the most significant factor that is stopping upgrades from occurring today. 6. What role, if any, do you think the City ought to play in assisting the redevelopment or remodel of older condominium projects? Let the free market do its thing. The City should not get involved in assisting with the remodel of older complexes with the exception of streamlining the permit process for all types of building applications. P74 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 31 CONDOMINIUM LODGING INTERVIEW: JOHN CORCORAN 1. Are you/your owners interested in a significant update, remodel, or redevelopment of all or part of your condominium complex or an individual unit? Why or why not? Yes. They have two markets they need to stay competitive in – owners and renting guests. Both of these markets have evolved past the physical offerings that are available at the Alps. The Alps has a great location, great service, but does not offer the newer type of unit that has been built at other surrounding properties. 2. Do you have any difficulties renting your condominium unit for short-term stays? If yes, why do you think that is? The Alps has lost some guests due to competition from newer properties, and has also been affected by the overall economy. A lot of people still come to the Alps because of the service they get and their comfort with the facility. 3. If you did invest in a significant update, remodel, or redevelopment, would the property be more likely or less likely to be rented short-term? Would the upgrade be done so you could keep it in the rental pool or because you want to remove it from rental? Owners will make investments that suit their own needs with the expectation that it will also help the unit rent better. Any redevelopment or updating of the Aspen Alps would not make the units so elegant that the owner would be unwilling to rent it out. He expects the new units will still be rented, in fact upgrades could enhance their desirability and overall occupancy. 4. Have you identified specific City rules or requirements that make the update, remodel, or redevelopment of your condominium complex difficult? We are most interested in hearing about land use and building regulations (zoning limits, multi-family replacement regulations, growth management etc.) but if there are other concerns please let us know. Has seen several owners who wanted to combine units be unable to do so because of the maximum unit size limit in the Lodge zone district, despite the fact that combining those units would not have removed them from the rental market. The Alps is significantly nonconforming as to density and floor area. If they were to tear down one or more of the buildings and were required to re-build the same project, why would they do that? How can that make economic sense? Their owners are not super- wealthy people to whom the bottom line is not necessarily important. How much will the City bend in terms of mitigation required to allow the units to be re-built? P75 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 32 Multi-family replacement regulations probably don’t affect most Alps units because of the exemption for tourist units. But they do tend to “freeze” older complexes in time leaving complexes in the neighborhood that cannot be modernized. 5. What issues, not City related, present an obstacle for the update, remodel, or redevelopment of your condominium complex? (for instance large HOA, or HOA that does not agree or owners who have no interest in spending the money necessary to upgrade or have other financial issues). Building consensus in an HOA is very tricky, even though he has a forward thinking group of owners and board members. It is always hard to time the market – don’t know when the business cycle is going to be most favorable to this type of project. How do you stay ahead of the technology curve and changing market demands – wi fi etc. HOA’s move more slowly than the market. Gaining consensus from a large group of people (owners) in response to changing conditions can be challenging. Transportation to the airport is a huge issue. Need a dedicated service that is not stuck in traffic, whether it is a lane on the Highway (their vans cannot use the bus lane) or a monorail or similar technology. Also need increased air service into Aspen, primarily commercial service (most of their guests fly commercial) so more people can fly direct from other cities to Aspen. This is an important feature to maintaining and growing a tourist base. 6. What role, if any, do you think the City ought to play in assisting the redevelopment or remodel of older condominium projects? There is general concern that going in front of the City with a discretionary application is going to be a difficult experience. Why wouldn’t the City want the Aspen Alps to be the best property it can be? Paying extractions/offering public amenities should not be the only “currency” to make things happen – creating a better product for guests, owners and the community should be seen as having its own value. There is an impression that the only incentives the City will offer is for the kind of traditional hotel that the City seems to favor. But condominiums are an important part of the lodging mix as well. The City needs to understand what the customers are looking for and it is not necessarily a small traditional hotel room. Don’t dis-incentivize condominiums relative to hotels – at least have a level playing field for all types of lodging. P76 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 33 His owners have a huge financial and emotional stake in Aspen and its non-profit institutions. These people are a part of the community, contribute to non-profits, and volunteer time and talent to organizations here in Aspen. P77 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 34 CONDOMINIUM LODGING INTERVIEW: SUNNY VANN 1. Are you/your owners interested in a significant update, remodel, or redevelopment of all or part of your condominium complex or an individual unit? Why or why not? Not applicable. 2. Do you have any difficulties renting your condominium unit for short-term stays? If yes, why do you think that is? Not applicable. 3. If you did invest in a significant update, remodel, or redevelopment, would the property be more likely or less likely to be rented short-term? Would the upgrade be done so you could keep it in the rental pool or because you want to remove it from rental? Not applicable. 4. Have you identified specific City rules or requirements that make the update, remodel, or redevelopment of your condominium complex difficult? We are most interested in hearing about land use and building regulations (zoning limits, multi-family replacement regulations, growth management etc.) but if there are other concerns please let us know. Many of the condominium properties are nonconforming as to floor area and/or density, whether they are in the Lodge, RMF or other zone district. This means that if they are to be upgraded or replaced they must comply with the nonconforming structure section of the Code which creates significant obstacles for the owner. It doesn’t make economic sense to re-invest in a property when the Code requires the new project to be essentially identical to the form of what was removed and to not increase in size. The only option is for a developer to buy out some of the owners and then distribute their development rights to the other units so each can be somewhat larger and that may not make economic sense. The nonconforming section of the Code should be revised to create some flexibility so the replacement building can comply with new health and safety codes that have been adopted since the original structure was built and to offer some limited expansion potential so the project makes some economic sense. The increased floor area and density do not have to be “by-right”; they can require special review or PUD review to ensure compatibility. But unless an incentive is present many redevelopment projects will not be feasible. The market is not demanding new condominium units that are stacked one on top of the other as is found in most of existing complexes. Instead the market is looking for a townhome configuration and would prefer a larger unit. The challenge is that units in this configuration and size are costly enough that the owner typically has less interest in P78 I. Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen Page 35 turning them into short term rentals. So the key is to identify an incentive (such as floor area or density) that will induce the developer of the new (or replacement units) to agree that a significant percentage of those units will go into the short term rental pool. Most older complexes have units that have housed a local resident at some point in time. So even if these units are essentially short term rental properties, they have a history of occupancy that makes them subject to the multi-family replacement regulations. These are not the kind of units that this regulation was written to address. This regulation needs to be fine-tuned so it does not apply to these types of units. 5. What issues, not City related, present an obstacle for the update, remodel, or redevelopment of your condominium complex? (for instance large HOA, or HOA that does not agree or owners who have no interest in spending the money necessary to upgrade or have other financial issues). Not applicable. 6. What role, if any, do you think the City ought to play in assisting the redevelopment or remodel of older condominium projects? See suggestions in #4, above. P79 I. 123079-Charrette Memo_110912 M EMORANDUM To: Chris Bendon, Community Development Director Jessica Garrow, Long Range Planner From: Brian Duffany Subject: City of Aspen Lodging Charrette, EPS #123079 Date: November 9, 2012 Background The City of Aspen invited Economic & Planning Systems (EPS) to a Lodging Charrette on October 23, 2012. The Charrette was a meeting of lodging, real estate, and planning professionals active in Aspen organized to discuss the challenges and opportunities related to maintaining and expanding the overnight bed base in Aspen, and specifically expanding and maintaining economy to upper mid-range lodging. The City and condominium and lodging managers have noted a gradual decline in the City’s bed base due to a number of interrelated factors. Following the Charrette, the City asked EPS to:  Summarize the major themes and findings of the Charette;  Provide available examples of how peer resort communities are addressing this issue; and;  Propose next step policy and strategy recommendations to the City. P80 I. Memorandum November 9, 2012 City of Aspen Lodging Charrette Page 2 Problem Statement High occupancy turnover (HOT) accommodations, commonly referred to as “hot beds,” are critical to the economic base of a destination mountain resort. HOT beds provide the accommodations for tourist visitors which, in most mountain resorts, produce the majority of the sales in local businesses and cultural and entertainment venues. Even in communities like Aspen, where there are an increasing number of part-time residents present for more than six months of the year, HOT beds still play a large role in the economic health of resort communities. EPS has found, through numerous assignments in Rocky Mountain resorts, that destination visitors spend more per day of their visit than full-time or permanent residents. While Aspen has a reputation and image as a destination and home to the wealthiest of the global elite, historically it has had a variety of lodging types that attracted visitors in a range of demographic segments. Some in the lodging and tourism industry are concerned about the eventual economic impacts of a bed base that is declining in both numbers and quality in the mid-range market segments. In mountain resorts, the hot bed inventory is comprised of hotels and motels, condo hotels, vacation clubs and timeshares, and private condominiums that are rented on a nightly basis. Community leaders, lodging operators, and others involved in the tourism economy have observed a decline in the economy to mid-range hotel and motel inventory in Aspen, as properties have been sold for redevelopment as high end residential properties. As condominiums have increased in value due to market appreciation and remodeling, the number of condominiums placed into the overnight rental pool has decreased. Owners of high value condominiums and homes either do not need or care about rental income, or may simply not want other people using their property and furnishings. In addition, Aspen’s condominium inventory is relatively old and obsolete compared to newer condominium lodging in competitive resorts such as Vail and Beaver Creek, and Park City (including Deer Valley and The Canyons). Many of Aspen’s condominiums were built in the 1960s, 1970s, and 1980s and have low ceiling heights and few amenities, such as elevators, wireless internet, health/fitness facilities, or even adequate parking. Aspen’s constrained land supply and restrictive development regulations have made it more difficult and more costly to redevelop older properties and to develop new condominiums. Charrette Summary Brian Duffany of EPS attended the Charrette and was placed in Group 3. Group 3 was comprised of several lodging operators, ranging from economy properties to upper-mid range properties, a condominium rental property manager, an experienced resort developer, and a lending representative. This group tended to be focused on and knowledgeable of the economics of condominium and lodging development and operations. The discussions frequently returned to economic fundamentals including the cost of land, construction costs, and financial risk and return. The City’s development review process was also a focus. While we were instructed to discuss separately existing lodging, new lodging, and condominiums, our group found it difficult to differentiate the issues since the underlying resort and real estate economic factors are common to each lodging type. P81 I. Memorandum November 9, 2012 City of Aspen Lodging Charrette Page 3 EPS’ interpretation of the major issues and opportunities from the Charrette is summarized below. The commentary below does not necessarily reflect EPS’ opinion of the best balance of the varying policies that are in tension in Aspen; e.g. affordable housing and lodging development. We are merely stating the conclusions of the Charrette Group, and the economic realities of real estate development in Aspen. Another caveat is that much of this summary highlights largely negative issues and impediments. Charrette participants acknowledged that Aspen is highly successful and the issues identified are largely a product of this economic prosperity. The quality of the destination and experience is what sets Aspen apart from other resorts. Aspen consistently achieves the highest seasonal and year round occupancies of the Rocky Mountain resorts and is a globally recognized brand. Real Estate Economics 1. The high cost of land and construction makes new hotel development infeasible and the expansion of existing properties difficult; high end ownership residential development is favored. The cost of land in Downtown Aspen and surrounding the Aspen Mountain base can be more than $500 per square foot. This is roughly 10 times the cost that an upper end hotel can support with an average daily rate of $300 per night (annual average) and annual occupancy in the high 50 to low 60 percent range, which is the typical occupancy range for Aspen hotels. This economic reality (the value of Aspen real estate) is driving the gradual loss of older lodging properties to redevelopment, as land values exceed the values of existing buildings and business operations. For existing lodges without surplus land that could be used for expansion, it is not feasible to purchase additional property for expansion. High land costs also dictate that any new condominium development will be priced at well over $1.0 million. In this price range, owner participation in the overnight rental pool is also very low. Owners in this demographic do not generally purchase resort condominiums for their rental income. Recommendation or City Role: Largely beyond City’s control. Only with large subsidies would the City be able to affect the supply of mid-range overnight lodging. 2. Seasonal occupancy fluctuations compound the feasibility challenges in hotel development and operations. The future viability of the condo hotel product is also in question. The top performing hotels in Aspen achieve annual occupancies in the high 50 to low 60 percent range. For comparison, good hotels in urban environments achieve occupancies in the 70 to 80 percent range due to the higher level of year-round economic activity. The lower annual occupancies in seasonal resort settings equate to a lower cash flow which makes hotel development less profitable. When combined with the high land costs in Aspen, hotel development is often not financially feasible and it is difficult to secure development financing. Few if any pure hotels have been developed in any upper end destination mountain resorts over the past 15 years. Instead, resort developers have built variations of condo hotels to provide HOT beds while circumventing the hotel feasibility challenges. P82 I. Memorandum November 9, 2012 City of Aspen Lodging Charrette Page 4 Condominium hotels, like pure hotels, have a central check in or front desk and some guest services. Having numerous individual owners spreads the financial risk and operating costs of the hotel over more owners than does a pure hotel with one ownership entity. However, the units are sold to individual owners who may or may not elect to rent their unit. Nevertheless, experience shows that roughly 75 to 85 percent of condo hotel unit owners rent their units. During the real estate crash beginning in about 2008, even condo hotels have proven to be difficult to develop. Several proposed and partially completed projects in Colorado and elsewhere went into bankruptcy as buyers cancelled pre-sales contracts or when the project could not achieve sufficient sales volume or cash flow due to the recession. The Viceroy in Snowmass, the Hotel Madeleine (formerly the Capella) in Mountain Village, Base Village in Snowmass, and Trailhead Lodge in Steamboat are examples. While the condo hotel model relies in part on one’s desire to own real estate as an investment, this appeal may be in decline following the Great Recession. Recommendation or City Role: Largely beyond City’s control. Consider being open to different types of hotel and condominium development, as each fills a roll in supplying HOT beds. 3. Ownership residential units are often proposed in hotel projects in order to subsidize hotel development costs and risks within the project. As discussed above, pure hotel developments are not typically feasible in high cost resorts such as Aspen and its competitors. However, many resort host cities are interested in attracting additional hotel development because of the economic impacts of hotel beds (visitor spending). Hotel beds generally have a larger economic impact than condominium beds due to higher annual occupancies. Resort developers are sometimes encouraged to include hotel rooms in their projects during development review negotiations. To help fulfill the desire for hotel rooms, the market response is for projects to include a mixture of pure hotel rooms and fee simple ownership residential units (e.g., condominiums and townhomes). Sales revenue from the more profitable residential units is used to offset the less financially viable hotel component in order to generate the financial returns needed to attract investment. In order to combine these product types into a viable development project, it is common for developers to request height and density variances in order to maximize a site’s utilization and revenue producing potential. Large projects have a better chance of succeeding due to economies of scale and to the home owner’s association dues from the residential units, which partially fund the hotel amenities and operations. This is true in resort settings and urban settings; the Four Seasons and Ritz Carlton models are examples. Recommendation or City Role: Consider offering more flexibility in development review to allow residential units with hotel projects, recognizing the financial feasibility limitations of hotel development. P83 I. Memorandum November 9, 2012 City of Aspen Lodging Charrette Page 5 4. Charrette participants did not seem to favor the City offering financial incentives or subsidies to lodging developers or operators. Cities sometimes offer financial incentives to hotel developments to fill financing gaps when there is a real or perceived economic benefit to the City that is equal to or greater than the incentive or subsidy. When asked about potential tools or incentives the City could offer to attract mid-range hotel and condominium development, there was a general agreement that it was not advisable for the City to “get into the hotel business” or to “pick winners and losers.” In addition, the level of financial subsidy required would be unrealistically large. Alternatively, for existing properties there seemed to be support for incentives like fee waivers, expedited permitting and review, exemption from or reduced housing mitigation requirements, and perhaps limited use of tax increment financing. Most of the group’s focus was on streamlining the City’s development regulations and review process and creating more predictability in the process. In EPS’ view, it may be worth exploring the feasibility and effectiveness of offering incentives such as lodging tax rebates, permit and fee waivers or reductions, and tax increment financing (TIF) to address feasibility gaps, especially for existing lodging renovation projects. For new projects, these incentives may not be enough to have a measurable impact. In addition, there are arguments that the over-use of incentives like these inflate or maintain costs, as the incentives become built into assumptions on project revenues and supportable land values. Recommendation or City Role: Explore reducing or waiving fees and housing mitigation requirements for new projects, and offering expedited permitting and review for existing hotel/lodge and condominium renovation projects. Consider financial incentives such as tax rebates and TIF targeted to mid-range lodging projects and existing property renovations and expansions. Development Regulations and Review 5. The current land use code contains barriers to renovating and/or redeveloping aging condominiums. The report prepared by Alan Richman and Associates, Overcoming the Obstacles to Upgrading Condominium Lodging in Aspen, provides an extensive discussion of the barriers to both lodge and condominium development and redevelopment. In essence, the code favors lodge development and redevelopment. Charrette participants agreed that there was a need to “level the playing field” for existing condominiums since they make up nearly half of the tourist bed base. Many of the condominiums in Aspen are non-conforming uses because they exceed the density of their base zoning or 14 units per acre. If a condominium complex were to be redeveloped, it would be subject to the base zoning, which in many cases would allow fewer units than exist today, creating a financial dis-incentive for redevelopment. In addition, redeveloping a condominium building triggers multifamily housing replacement regulations. These regulations require that any demolished or redeveloped multifamily housing be replaced one to one with housing deed restricted to Aspen residents (no income limit), or replaced with 50 percent Category 4 units. Lodge re/development is subject to different regulations, which allow higher densities and contain more flexibility. P84 I. Memorandum November 9, 2012 City of Aspen Lodging Charrette Page 6 New condominium development is also subject to the growth management quota of 18 free market units per year. Lodge development is not subject to the growth management quota, since lodge units are not classified as dwelling units. Finally, developers present at the Charrette noted that the cost of fees, permits, and exactions (e.g., affordable housing) are among the highest of any resort community in North America. This adds additional development cost, complexity, and time to developing in an already costly market. Recommendation or City Role: Review the findings of the Richman report. Seek direction from City Council and other stakeholders on the types of regulatory changes that may be acceptable to first facilitate renovation of existing properties (condominiums and lodges), and second to create opportunities for new development and redevelopment. 6. Increasing development density is a way to encourage HOT bed development and condominium redevelopment. However the existing two to three story development context will make this politically contentious. Density and height increases are requested by developers to offset the high cost of land as well as the various fees and exactions required by the City. Higher densities enable projects to generate more cash flow per square foot of land, increasing project feasibility and decreasing financial risk. Much of the City of Aspen is built at a two- to three- and occasionally four-story height, which gives Aspen much of its character. Few buildings rise higher than the tree canopy or substantially higher than neighboring buildings, thereby protecting views. However, the trade-off for low height limits, compared to competing resorts, is increased development costs per unit or room and higher real estate prices. This link between real estate economics and the underlying zoning results in high value residential units, which are not as likely to enter the tourist bed base, and a lack of hotel development or renovation due to feasibility constraints discussed above. Recommendation or City Role: Identify areas of the community where it is appropriate to increase development densities and/or expand the Urban Growth Boundary to increase the land supply. Pursue HOT bed development in these locations. The Lift 1A site is a potential example of sites that may be appropriate for more density. Ski area portals are particularly attractive to resort developers because of their central location and high activity levels. The Lift 1A area, as well as Gondola Plaza area, may be appropriate. Other areas with aging condominiums may be appropriate to increase density. Public-Private Relations 7. Developers have noted that City officials and the public at large do not understand the financial risk and return requirements and feasibility constraints of real estate development. Whether it is earned or not, it is common for there to be some distrust between a city’s officials and development review staff and real estate developers. While one could generalize that developers are always interested in maximizing profit, requests for height and density increases are often made for feasibility reasons, especially when a hotel product is part of a project. When the desired type of development does not occur in a community, it is evidence of either a lack market demand, financial feasibility, or regulatory impediments. The consensus of this group is that the impediment is largely financial feasibility. P85 I. Memorandum November 9, 2012 City of Aspen Lodging Charrette Page 7 The 2006 Study by Hospitality Valuation Consultants (HVS) estimated the land values that a mid-range hotel could support in Aspen at approximately $40 per square foot, far below the several hundred dollar per square foot value of land in Downtown Aspen. The analysis also addressed, albeit peripherally, risk and financial return. While EPS believes that the analysis is technically correct and EPS agrees with the findings, a simplified and more concise analysis could be prepared to illustrate the constraints imposed by land values, but also the risk and reward aspects of real estate development. Real estate development is one of the most risky investment options, and the financial returns required to compensate for this level of risk are higher than other investments with lower risk such as stocks or bonds. A real estate developer or investor compares the risk of a development to other investment options and adjusts financial return expectations according to the likelihood that a project will perform as expected. A developer would therefore not invest in a real estate project if he/she expected only to earn returns comparable to stocks, bonds, or other traditional investments. Equity (cash) return requirements can be upwards of 15 percent, compared to about 7 percent for the Down Jones industrial average. Recommendation or City Role: Assist staff and council in understanding the impacts of land use regulations on development feasibility. Encourage developers to share project pro formas and demonstrate the need for density or height increases based on project feasibility impacts. Encourage a more open dialogue or partnership between real estate interests, especially those proposing HOT bed development, and the City. Peer Communities In EPS’ recent experience, resort communities are generally supportive of HOT bed development and seek to expand their bed base, some more aggressively than others. However, no community faces the same cost, land supply, and regulatory constraints as Aspen. Aspen’s challenges are not unique, but are more challenging due to the higher relative costs and regulatory constraints. Aspen stakeholders may be of the view that Aspen is unique and that none of these examples below are relevant to Aspen. Development densities in these examples are also considerably higher than what is permitted in Aspen. The following is a brief discussion of the successful and unsuccessful approaches from selected communities. Mountain Village, Colorado Mountain Village was created from a PUD in San Miguel County in the 1980s. It is the second, although some might argue that it will become the primary portal to the Telluride ski area. Much of Mountain Village is built as low density condominiums and large single family residences. Mountain Village’s low density lodging inventory underperforms, with low rental program participation and low occupancy rates. The Town’s Village Core is designated for higher densities, but the Town has struggled to attract a sufficient critical mass of HOT beds to support its retail. There have been several development proposals in the Village Core for higher density lodging, but they were met with community opposition due to height and density impacts. The Capella Hotel project, now Hotel Madeline, may represent a turning point for the Town. The Capella was proposed as a 100-room hotel with 50 units of condominiums in an adjacent building. The Town required the project to provide numerous amenities such as an ice rink, and underground parking and loading. The developer requested an additional floor of height to compensate for these increased costs. The Town was initially inflexible in granting the height increase. P86 I. Memorandum November 9, 2012 City of Aspen Lodging Charrette Page 8 Eventually, the developer and the Town reached a compromise on height. However, it required the developer to reduce the ceiling heights in the units to 8.5 feet from 10 feet. The reduced ceiling heights impacted the marketability of the project. The Great Recession followed soon after the project was built and the project went into bankruptcy. During negotiations between the Town and the developer, a number of council people and other stakeholders came to the realization that people did not understand the economic benefits of HOT beds and the need for a more marketable tourist bed base. EPS worked with the Town to build a fiscal impact model that is used to evaluate land use changes and development projects. It also contained an educational piece that illustrated the land use and economic linkages in the Town. This work formed the basis of the Town’s first comprehensive plan, which increased density in key locations in and around its Village Core to promote HOT bed development. Vail, Colorado West Vail and Lionshead have several aging condominium buildings and a confusing circulation pattern. Seeing the need to continually improve on the visitor experience and reinvent to remain competitive, the Town is working in partnership with Vail Resorts Development Corporation (VRDC) to define a redevelopment plan for West Vail. Two recent projects are major catalysts to redevelopment in Lionshead and West Vail: The Ritz Carlton, and The Arrabelle. The Ritz has 71 condominium units and 45 fractional club units. The Arrabelle is a luxury condominium building but has numerous units with lock-offs. VRDC is also planning the Ever Vail redevelopment which would contain 1,500 residential and hotel units; however, this project is on hold pending a stronger real estate market recovery. The Town recognizes that condominiums are a large portion of the tourist bed base and that no pure hotels have been developed in Vail in anyone’s recent memory. During development negotiations for the Arrabelle, the Town worked with the developer to create an incentive program to encourage rental program participation. The Town has identified Lionshead and West Vail as an appropriate area for higher densities, and thus far has allowed heights of roughly five stories; additional heights are possible. Part of the intent of allowing higher densities in this location is to encourage HOT bed development. Steamboat Springs, Colorado The City of Steamboat created an Urban Renewal Authority (URA) to facilitate redevelopment at the ski area base. Like Aspen, Steamboat saw extensive condominium development in the 1960s, 1970s, and 1980s, and much of the lodging and commercial inventory is dated and reaching obsolescence, especially in the Base Area. The URA used tax increment financing to pay for major infrastructure and pedestrian connectivity improvements in the Base Area to help catalyze redevelopment. Two major projects have been completed so far: One Steamboat Place, which is a fractional club development, and Highmark, which is a luxury condominium project with hotel amenities. There are several other condominium and condo hotel projects proposed in the Base Area, although they have been shelved since the recession. The Atira Group purchased the Thunderhead lodge which contains roughly 150 condominiums dating back to the early 1970s and razed it for redevelopment along with several smaller condominium and commercial properties in Ski Time Square. The City has not indicated a strong preference of favoring pure hotel projects over condominium projects; its approach is to allow the market to determine what is feasible and recognize that a large portion of Base Area condominiums will likely enter the rental pool. P87 I. Memorandum November 9, 2012 City of Aspen Lodging Charrette Page 9 Concluding Remarks There is no simple solution to expanding the City’s tourist bed base. High land costs are a major barrier to hotel and mid-range condominium development. Real estate economics indicate that any hotel development will need to contain a luxury residential component to subsidize the hotel component. With the current height and density limits, the feasibility of residential-with-hotel projects seems to be marginal as well. The most viable development type in Aspen is high-end residential and the market will continue to supply that product. Even with a major loosening of exactions and density increases, hotel development will still be inhibited by high land costs. Real estate pro forma modeling would provide a better characterization of the extent of the feasibility gaps and identify more specifically the land use/zoning conditions and exactions that have the largest impacts on feasibility. The selected case studies suggest that allowing higher densities can help attract HOT bed development in resort settings, although the recent recession has stalled many projects. Vail, Steamboat, and Mountain Village already contain developments that are built at considerably higher densities than the majority of Aspen’s built environment, which has made higher densities more acceptable. In these examples, the communities have opted to give deference to the market to provide the types of lodging and condominium products that are in demand and are financially feasible. There should be provisions to facilitate condominium renovations, especially since condominium redevelopment is so difficult with multifamily housing replacement regulations and non- conforming use challenges. From an economic perspective, it is also advisable to up-zone (increase allowable density) aging condominiums to create an economic incentive for redevelopment and modernization, especially in areas that are not likely to generate widespread opposition from neighbors. P88 I. November 30, 2012 er Jessica Garrow, AICP, Long Range Plann t Department Community Developmen Street City of Aspen 130 South Galena Aspen, CO 81611 Re: Aspen Affordable Lodging Dear Jessica: This letter is in response to the planning office’s request for my observations about the Aspen lodging charette held in October and, more broadly, my observation regarding the affordable lodging issue in general. Background Per your request, I reviewed a number of background reports related to transient bed base quantity, character and occupancy rates in Aspen. I attended an October 20th charette, which assembled members of the Aspen lodging community and policy makers to discuss the condition of Aspen’s lodging sector and consider the prospect of public efforts to stimulate additional affordable (lower price-point) transient lodging. There were roughly 18 charette participants with representatives of lodging management, hotel ownership, marketing organizations, ski area operations, and city council and staff. The objective of this half day session was to get feedback and collective insights into the following issues: Is there a problem with, or unique opportunity in, the Aspen Lodging sector? Towards what goal? If so, how might the city and other involved interests intervene? What does this intervention look like? Does the city have a role? What happens to the lodging inventory if the city doesn’t intervene? We broke into three groups of about 7or 8 persons each and considered the above topics as they applied to three forms of development: hotels, fractional or interval ownership units and condominiums. P89 I. PAGE 2 Evidently, it was already well known that the city council was considering some kind of market intervention and my discussion group went right to the question as to whether the city should sponsor (in some undefined manner) a relatively large, lower-price point hotel project as a strategy for diversifying the Aspen visitor market. What are other communities doing? As one of two outside consultants, I was asked to give particular thought to one additional question: Are other resorts contemplating (or have they already executed) strategies to stimulate lower priced hotel development or otherwise affect the mix of lodging products? If so, what policies are they considering or what has been their success? Let me address this question before recounting the opinions of my charette partners on other issues. In my experience, other resort communities share many of the same concerns about the quality, mix and appropriateness of their respective bed bases that were expressed in Aspen. Many resorts, at least up until 2008, commonly debated the merits or shortcomings of various forms of lodging (hot vs. cold beds, etc.) in the same manner as Aspen has over the years. Some resorts, mostly higher-end communities with strong market demand and thus the luxury of choice, have instigated either formal or informal regulatory mechanisms for promoting traditional hotel units, which are generally perceived as hot beds with significant public benefits. Most “regulation” towards this objective involves a system of rewards and penalties during the entitlement process as a means of shaping an applicant’s lodging mix. For a variety of economic reasons, most recent resort projects (the last decade) include a mix of lodging types and enter the market near the top of that community’s price range. Most communities react favorably to high-end hotel or interval ownership proposals, which hold the promise of wealthy customers and associated retail and restaurant sales. I can think of one recent exception, which involved a proposed, new Vail mixed-use project (2011) called “Ever Vail,” which promised a mid-level, rather than a high-end, hotel development. This was justified by as a form of market diversity and existing overcapacity at the high-end level. It should be noted that in this instance the developers did not foresee beginning development in the near future, and that ultimately a final market positioning decision would be made at some future time. Vail, Steamboat Springs and Park City, Utah have used urban renewal authorities to “subsidize” hotel development efforts but I can’t think of an instance where a resort community argued for a lower-end hotel. P90 I. PAGE 3 In short, I don’t think any western resort community offers an example of pursing the market diversity objective suggested in the Aspen discussions, although many resorts pursue “hot bed” goals by supporting hotel transient projects over private for sale units. Aspen is one of few communities so confident of its high-end market that it might prefer to channel development toward a lower price point. Outside of the resorts, public subsidies to support all forms of hotel development are common, as hotels are generous producers of tax revenue. General Sense of the Group At the Aspen charette, each group’s thoughts and conclusions were tallied and the final 45 minutes of the session were devoted to a full participant discussion of observations and conclusions. I assume this process has been compiled and will be presented in some manner to city council. I will offer more general observations. One disadvantage of the charette process was that each individual participant spent the session with only a small group of seven or eight other individuals, so that any observations I have only really reflect this subgroup’s discussions. At the end of the day, we did a general wrap up, but most of the substantive discussion occurred with just a subset of the whole group. My subset might not have been an accurate reflection of the entire group. With that caveat I’d offer the following two broad observations: 1) I would say the central theme of our group’s discussion was skepticism: There was skepticism about the extent of a bed base imbalance or problem in Aspen. There was skepticism that the city should, could or would intervene in the market place. There was deep skepticism that a large (relatively) low-priced hotel could be successful on an ongoing operating basis, even if development was subsidized. (Actually, there was skepticism that any new hotel, at any price point, could be successfully developed and operated in the current market and under current regulations.) There was skepticism that the lack of low cost rooms was the core problem in attracting a broader market. City staff provided survey data on lodging and accommodation trends but these data seemed to suggest that the city in recent years has actually gained lodging and gained low-cost lodging capacity. The 2012 MTRIP data indicates a 7.5 percent increase in all pillows and an a 118 percent increase in Aspen economy lodging (pillows) between 2009 and 20121 . Our group, which included owners and managers of current small/lower costs lodging projects, rity or even the existence of a low-cost lodging availability problem. questioned the seve 1 MTIP 2012 Transient Lodging Survey, page 10. P91 I. PAGE 4 Additionally, our group debated the merits of MTRIP’s occupancy data (general agreement that small lodges are underrepresented in sample); longer term lodging trends (most saw a modest loss of transient bed base, but in keeping with changing market demographics); and the role of interval ownership and Vacation Rental by Owner (VRBO) in providing varied and robust lodging offerings (most perceived this as favorable). There was a general consensus in our group that the existing lower cost lodges were underperforming the remainder of the Aspen market, in terms of occupancy and profitability, and that adding to the supply of underperforming properties didn’t seem an effective strategy. Comments were made to the effect: “We have many low cost lodging options, but the demand isn’t there. … building more of something that isn’t needed and isn’t financially feasible, isn’t a solution”. There was a reasonable consensus that expanding the general visitor market, particularly the younger Aspen, less affluent, entry level market, was a worthwhile endeavor, but moderately priced bed base was perceived as only a small part of the resort’s problems in attracting that market segment. 2) Our group was interested in the Alan Richman Report and in stimulating se. redevelopment of all residential units as a means of improving the bed ba There was interest in the findings of the Alan Richman report, which documented the problems of overlapping regulation throughout the community, and the stifling effect it has on property renovation and modernization. There was enthusiasm for regulatory reform that would allow—“enco urage rather than penalize”—residential p roperty owners of all kinds to renovate aging and deteriorated units. Our group felt strongly that encouraging remodeling, renovation and updating of all forms of housing—con dos and lodging—would have a far more beneficial impact, and less public costs, than would promoting a subsidized hotel. Comments were made to the effect: “We have more of a problem with an aging and deteriorated bed base, than with inadequate affordable lodging.” The group’s support for remodeling also underscored additional observations that the council’s resistance to private condominium development was over stated. Generally, our group believed that private condominiums—although not hot beds in the same manner as hotels—were still valuable additi ons to the rental housing stock and that council’s apparent aversion to private units was misplaced. Some members of our group had familiarity with an older HVS study of Aspen hotel development feasibility, which demonstrated how challenging it was (and is) to build and operate an economically viable hotel of any kind in Aspen. Our group supported the conclusion that a small hotel project could only be done with a complement of private units and interval units, and generally did not consider this mix a problem. Questions were raised to the effect of: “If you can’t build a free market hotel, why would anyone consider an affordable project? What’s wrong with a mix of lodging units—if it’s the only way to get any hotel rooms built?” P92 I. PAGE 5 Personal Observations It struck me while participating in this charette that the process suffered from some confusion over ends and means. The conversations that I was part of centered around the reasonableness of public intervention to support a lower-price point hotel project. I think the broader issue of Aspen’s aging demographic and its implications for the city’s long-term vitality—an issue shared with many mountain resorts—didn’t get a fa ir hearing, or much direct discussion. I’ve said that our group was skeptical, perhaps even dismissive, of public subsidy for affordable lodging, but I think they would agree that Aspen has a problem with narrowing visitor demography and few points of entry exist to introduce a new generation of Aspen visitors. I think the city would have benefited from first presenting the demographic issue and then asking how the community might address this narrowing market problem. In this context, the city could then test interest in additional affordable lodging, in conjunctions with other strategies to address this challenge. Because our group seemed to know of the city’s consideration of a low cost lodging proposal, we were very quick to take up that issue without much discussion of motivations. I hope these observations are of value in your discussions. It was a very interesting afternoon and I appreciate being invited to participate. Sincerely, Ford C. Frick Managing Director P93 I. Exhibit E, Notes from 10.23.2012 Lodging Charrette Page 1 of 8 EXHIBIT E - NOTES FROM OCTOBER 23, 3012 LODGING CHARRETTE Participants: Alan Richman Warren Klug Charlie Bantis John Sarpa Michael Berhandt Chuck Frias Stan Clauson Helen Klanderud Bob Schultz Richard Stetter Charley Case Bill Tomcich Michael Brown Mitch Haas Donnie Lee Debbie Braun Bob Daniel David Corbin Craig Melville Rick Moore John Corcoran Scott Sinta Chris Striefel EPS Consulting BBC Consulting NEW LODGE DEVELOPMENT New Lodge Challenges • Difficulty in getting loan approvals before a development is approved – which is difficult • Ask for more than code allows – code is restrictive (reaction to what community thinks “we” should be) • Cost of land – residential alternative drives cost and needs to be included in cost/funding of new/redevelopment • “It’s a lot of money” – drives skepticism/distrust in policy makers toward proposals • Size/Density sensitivities • How to pick a few spots that allow for more size/density that allows the math to work. • Seasonality limits occupancy % (about 55%) and drives up Average Daily Rates (ADR) • How many big spec homes get built before it’s not what we want around us? • How to be economically viable? • What kind of lodging do we want? Do we want new lodging? • We have a variety of price point/product that serves a wide market • Cost and availability of land • Capital is dried up…reputation in Aspen for difficulty in getting projects approved. Folks aren’t coming here to do projects. • How to convince policy makers? o Independent analysts o “Isn’t it like it was when I got here?” – that is not what you’re telling me now?? o IRR required seems high to policy makers o Technical understanding goes against myth people create for themselves about the community • Product is aging – other resorts are accommodating upgrades, not us so much • Our history is that policy makers do not hold/maintain long-term views that investment decision-makers can rely on • Footprint/cost/financing/length of review & approval process • Attitude that condos are bad • Funding the model that woks – condo used by owner and still rented as a hot-bed • Condo product out-dated for market • GEMS – opposed to new lodging P94 I. Exhibit E, Notes from 10.23.2012 Lodging Charrette Page 2 of 8 • Push for new/moderate lodging has an impact on existing lodges • If existing moderate lodges have a problem of occupancy, why would we create new? • Council/staff that understands economics of buy/build/operate – occupancy at 55%...how can you entice development. What is possible in relation to other city goals (housing, etc)? • REGULATIONS = TIME that gets in the way…takes too much time, nitpicking, layers of hoops…rules change all the time…too much cycle-time to get through approvals…don’t see the purpose/goal of it…makes moderate lodging impossible and luxury difficult • Action-reaction cycles to growth…investment decision-making is hard to accommodate those policy swings • You can’t just be a lodge developer in the City today – you have to be a condo/AH/etc developer to make economics work/comply with regulations. • Multi-Family Replacement makes condo re-development to lodging a problem • Lodge investors can see greater opportunity in other resorts and avoid the “hassle” of Aspen approval process • Condo upgrades for older stock – how to make this happen? Role of city? • Overnight rental market – what does city’s regulatory process show? • Competitive impact on existing owners/operators – e.g. Zupancis @ substandard land cost • Is there really a need for new units? • Only thing doable includes residential/fractional • Cost of development approval is high and creates impediment to others to try it too… • Community’s appetite for development suggests a “small bite” approach to approvals • Mechanism of HOAs make some redevelopment difficult…Multi-Family Replacement impact New Lodge Opportunities • 2006 HVS Study – “what is takes” math…$40 per square foot or less • If a land owner is willing to take that risk, the City should do all it can to help them do it. • If you want lower priced rooms, you need more of them (>100)…and it can’t be just hotel rooms – need residential to bring land cost to $0 to $40 per square foot o Revenue sharing with buyers? o Price point <$1mill – these buyers might be interested • City needs to be more active in lodging industry o Regulations that work for industry o Decide if you want more/improved and what kind. • Aren’t we talking about only 2-4 opportunities for development? Isn’t mountainside appropriate? Figure out how to allow that to proceed. • More middle – upper lodging. Then City help that get developed. • How can SAS help drive business to “Gems”…coming • Proceed at Lift 1A sites • TIF made available – City’s portion not significant enough • Incentives – not just freedom from disincentives • Relief from designation to help redo existing lodging • Use of Zupancis property o Sold – not at market prices o RFP for development • Instead of subsidizing new, help to increase occupancy of existing o Marketing budgets are a challenge P95 I. Exhibit E, Notes from 10.23.2012 Lodging Charrette Page 3 of 8 o Technology is a challenge o Difficulty obtaining access to capital o Historic register properties – how should the city deal with/help these properties • How to make it financially feasible to let existing properties stay relevant at their existing properties stay relevant at their existing price points…only then will the market look at investing in new properties • 2006 HVS Study – “this is what it takes.” Is the City prepared to do it?...was the answer that people wanted to hear? • Build “smaller” condos that can function as hot beds (1,000 – 1,200 square feet)…is that the size point at market? • Create a model that works economically – how to get policy makers to buy into math? Instead of “throwing it out there and getting beat down” to what won’t work. • Incentives to condo buyers to help them decide to put unit into rental pool? o High association dues, lodging tax break, property tax break – competitive issues o City buys back value for deed restriction that puts unit into pool. • Lift 1 area – make it happen there if someone applies for it…will help other lodges in the area • Would City incentivize SkiCo to put better lift access in at 1A – on par with desire to incentivize lodging? • City incentivize other development around proposed new lodging? • If city wants lodging, approve what is proposed • Where are land opportunities for moderate lodging • MELVILLE/SKY properties for redevelopment New Lodge City Role • Regulations that provide for 5-% of units to be put into rental pool • The “go-go days” are gone. The City needs to seek out areas to help – investments are going elsewhere…need to determine to act in areas it thinks need help • Step back from some limits on height and mass that is necessary to let investment happen • Let re-investment happen • Zupancis is not the best location for lodging • CONVICTION – not “sound bites”…if you really want lodging, create codes that can make lodging work • Focus less on affordable housing – if you want lodging, focus on it • Creation of footprint • Don’t let today’s “feelings” make decisions – put it into code and keep to it. • Civil discourse • Use City $ to provide loans to existing moderate – low cost operators • DON’T subsidize a competitor EXISTING LODGE REDEVELOPMENT/REINVESTMENT Existing Lodge Challenges • Lower priced lodging has lower demand • Expansion-costs don’t address ROI • Challenge of keeping small lodged in business • Relying only on exiting bed base => lower competitive advantage P96 I. Exhibit E, Notes from 10.23.2012 Lodging Charrette Page 4 of 8 • No longer unique. There’s greater competition. • Small scale does not equal substantial redevelopment • Repeat shut downs prohibit new applications • Lower-end culture not here – mythical • Many people don’t want redevelopment • Bringing entire property into conformance with modern zoning • Time, Money, and Risk of reviews • Costs of mitigation • Owners not wanting to risk equity • Costs of new product too expensive even without city costs • Myth of lodging inventory loss • Challenge of greater competition within the local economy and other lodges • Condo Challenge – fixed up condo gets removed from the short term inventory • Smaller lodges not involved with trade programs, points, etc • Compliance with ADA • Challenge of internal (to City) competition between existing properties • Greater price competition with similar resorts • Other resorts with younger market. High competition. Our product is not evolving. • We are perceived as “expensive.” Challenge of myth. • Small lodges are not in MTRiP’s numbers • Demand for budget lodging is lower. Lower occupancy. • Smaller lodges have less rooms to spread redevelopment costs. • Total costs for fees exactions taps costs overwhelming. • Inconsistent “activities” for small lodges • Seasonality of demand (3 nights Oct - Dec 2012 over 30% occupancy) • Challenges of “simple” projects, historic regulations, permitting • Multi-family replacement • Non-conforming regulations • ADA triggers • Lack of amenity package on older properties • Development standards/restrictions. Collision of public policy and expectations (parking, density, FAR) • Mitigation • Difficulty of meeting ROI expectations • Properties not getting larger • Nostalgia factor • Financing • Tough for the “little” guy • Historic Designation • “Fear” of city Existing Lodge Opportunities • Lower taxes for existing lodges • 4 star property and keeping existing lodges here • Leveraging the Quality of the Aspen Experience. Occupancy, etc • City work with tax structure between condos (residential) vs. Lodge (commercial) state issue P97 I. Exhibit E, Notes from 10.23.2012 Lodging Charrette Page 5 of 8 • Allowing greater density = free land • Flexibility in zoning & Process. Height and Density • Deciding how big as a community we want to be. Where our balance is. • Becoming more comfortable with 4 star properties and family groups • Example – City’s repeal of outdoor seating limits. Showed flexibility, got out of the way. • Lower or minimize risk for proposals • Strongest market is 4 star and families. They are now going to condos. • Growing our seasons (color season) • Portfolio of attractions: downtown; activities; retail. • Address barriers to entry • Not “stuck” in aging demographic • Increased marketing • Allowing small lodges to redevelop while staying moderate • Conference facility to replace Given • Incentives for redevelopment of small lodges and for simple projects • Opportunity to think beyond Aspen City Limits. BRT and valley wide opportunities • Higher occupancy in existing lodges & better marketing, relook at existing inventory • Smaller lodge organization • Opportunity for another limelight • Opportunity to “feel” of new supply without diluting existing demand Existing Lodge Role for City • Identifying areas that could handle more density/higher buildings. City being more flexible in these areas, and creating more certainty. • Identify certain segments of market where City could provide direct benefit or assistance for redevelopment • Determine if there is an underserved market – focus on what our problem is and is that a city issue of a market issue. • Reducing costs for redevelopment • Reducing costs of capital/equity • Fees, taxes, land, exactions • Continue with residential component in redevelopment • Make Lift 1A area happen. It’s a second portal • Recognize the demographics of our customer • Relaxed mitigation to allow properties to be economically feasible • Recognize need to improve quality of existing beds • Investment in “points of entry” to create demand for lodging and encouraging return clientele…bike race, music festival, special events • Simpler process, less expense • Incentives focused on full redevelopment • Mind set – focusing on what we want, not prohibiting what we don’t want • Times period of reduced taxes. Related to $ invested • Reducing costs of $ • “getting out of the way” by reducing process burden • Relook at height and floor area. Be less phobic about mass. • Code equity between lodging condos P98 I. Exhibit E, Notes from 10.23.2012 Lodging Charrette Page 6 of 8 • Ideal room 450 square feet; fridge. Size is biggest issue • Better definition on what else we want. Providing clarity, easier path, sustained regulations not always changing Marketing efforts and recognition and important of partnerships • Seeing city as partner (not foe) • Better Air service coordination with City. Indirect role to support redevelopment . No direct person in community • Coordination with transit to Denver. BRT to Glenwood, what to Denver? • More events. Bike race, etc. Spread seasons • Art Museum conference space, public amenity • Redevelopment district/renewal district. Requirements of state. • Focusing on City resources on small lodge o refurbishment, remodels, investments o capital, development regs, simple process o creating template for redevelopment • 3rd party economic advisor who understands $ dynamic. Resource 1st to existing lodges • Product defined by user (not city). What does the customer want? • Reducing barriers. Reducing process. • Focusing on small lodges first • Incentive “season” to encourage redevelopment. Economies of scale. Could focus on type. • Additional FAR Amenities/front desk/services • Focus on area of town to focus redevelopment efforts. Program being scalable/purposeful. Create opportunity or venue to let specific set of properties redevelop. CONDOMINIUMS Condominium Challenges • Shouldn’t be as difficult to condominiumize a loge. They work, and are difficult to convert. • Lodges want affordable housing – a way to control some housing for employees • It is cost prohibitive to develop economy lodges • It doesn’t make financial sense to redevelop economy lodges • Make it easier for HOAs • Some HOA declarations prohibit short term rentals • The answer is NOT deed restrictions • Lodge incentives are offset by disincentives • Upgrades are done piecemeal and are very expensive need to make these more cost effective. Changing the uncertainty in reviews would help • All affordable housing requirements are too expensive. • Non-conformities make it really difficult to do anything to upgrade, improve, and expand units • Code is unclear and is a real struggle for individual owners and developers alike. • Costs to upgrade are cost prohibitive • Assembling owners is difficult • The mix should be dictated by the market • Multi-family replacement requirements are onerous • There is a strong bias against condos – need to equalize P99 I. Exhibit E, Notes from 10.23.2012 Lodging Charrette Page 7 of 8 • Removing units from the rental pool is less related to the amount invested in the unit than an owners general goal for the unit. • Condo owners invest because they want the unit, not because they want to rent it. • Occupancy may be lower than lodges • There is ebb and flow in demand there’s never one solution that works • There’s a general fear of new, rich condo owners. • Older product cannot compete with newer lodges • It is cumbersome to renovate a condo (bringing it up to code, navigating the system, city fees, etc…there’s no help from the city) • Differences in each owner’s financial ability to upgrade • There’s a disincentive to invest in your unit. The bad units bring the rest down. • Non conformities are a serious issue. For example, the Alps is 83 units. Today with zoning they could only develop 31 units. • Concerns that small lodges are converting to condos. • We’ll keep losing inventory if we don’t do something • Existing condos are stuck. There’s nowhere to grow. • Condo hotels are a risky development investment because it’s another layer of complexity. There are also operational challenges • Challenge in updating • Age is the primary issue. We need to meet guests expectations, and we don’t • People are emotionally tied to their unit. People don’t want to lose their unit for a period of time, which make upgrades difficult if not impossible. • There has been a steady reduction in rentals because owners want to spend more time here. • Higher value rentals don’t want to rent. • Fractional owners are now like the condo owners in the 1970s fewer weeks at a lower price. • People are still intimidated by Aspen. Condominium Opportunities • Economy does not equal cheap here. Our visitors are different than the I-70 corridor visitors • There’s a reluctance to accept what we are. People looking for cheap accommodations don’t come here. We are not a moderate priced town. • Condominiums fill the moderate market here. • When we’re full it’s because of the relative value – it’s not price specific. • Creating “lodge infrastructure” within condos probably increases the likelihood of rentals (front desk, conference facilities, etc) • Don’t restrict how an owner can use their unit. These owners are huge supporters in of the community, and many do rent while they are not there. • Condominiums provide an important accommodation option • Determine if there is demand for a certain type or level of condo • Creation of brand standards at property levels. Units in the same complex can have very different levels of quality and amenities – standardization would help • There’s no consistency in product and no rating system – may be an opportunity. • We need to address obsolete buildings and units • City could identify potential locations for condos. And then be flexible on mitigation, etc to encourage them. • Find out what other communities are doing. P100 I. Exhibit E, Notes from 10.23.2012 Lodging Charrette Page 8 of 8 • 60% of inventory is in 2-bedroom units…we should look to encourage 3 & 4 bedroom units. • Community-wide rating program • There are a lot of long-time owners. Condominium Role for City • The City Keeps asking the community what lodges and price points are appropriate we should be asking the guest. Who is our customer? We need to ask them what they want. • Other communities are investing in condos. We need to be competitive with those resorts. • Encourage modernization and reinvestment • There should be some legal structure that restricts use, or allows for the hybrid lodge/free- market use. • Properties don’t fit into just lodge or just multi-family residential make room for and define this hybrid. • Push incentives to what we want. • Incentivize renting your unit – subsidize HOA dues, etc. But, this is not really economic – it’s like an art. • Property tax incentives, parking, etc to incentivize individual owners to rent their unit • Give an FAR or density bonus to put in a front desk to help it operate like a lodge • Get rid of the inherent multi-family dis-incentives in the lodge zones. • Eliminate the multi-family replacement requirements. • Remove regulatory barriers • Create incentives: fee waiver, etc in exchange for renting units for a certain period of time • City should incentivize both conods and lodges • What does the data say? Where do we compare to other resorts? • Prepare for improvements to existing condos • The city needs to help facilitate re-investment • Make it easier to and even encourage upgrade and expand units • Add more height and density allowances • Lower regulations incentivize improvements • Encourage on-site amenities • Allow more residential (condo) development with hotel amenities • Encourage lock offs in condos and more units…could be a way to enable 3-4 bedroom rentals in our 2-bedroom heavy rental pool. • Give more density…upzone. • Encourage a joint hotel-condo project. • City policing rentals would be difficult • What happens as our condo stock becomes old, tired, and dated? Guests don’t want to stay there, and rentals decline…could be an opportunity for improvements. P101 I. Page 1 of 2 MEMORANDUM TO: Mayor and City Council FROM: Jessica Garrow, Long Range Planner MEETING DATE: Tuesday, December 11, 5:00pm Council Chambers RE: Employee Generation Study Update REQUEST OF COUNCIL: No action is required. This is a check in meeting to provide City council with an update on the Employee Generation Study. The project is on scheduled, and will be completed at the beginning of the new year. BACKGROUND: Earlier this year, City Council identified a number of AACP implementation priorities. One of the top priorities was updating the ten-year old study of employee generation figures. The last study was completed in 2002, and this update ensures the employee generation numbers in the land use code account for the changes and fluctuations in the market since then. The City contracted with Economic Planning Systems (EPS) out of Denver to conduct the work. Attached is the draft report. EPS and city staff surveyed 110 managers and owners of local businesses and lodges during late September. The businesses and lodges surveyed represent a statistically valid sample of business from the following categories: Hotel, Business/Professional Office, Non-profit Office, Real Estate, Restaurant/Bar, Retail, and Services. Using that information, as well as business license records and employment data from the State, EPS was able to provide updated employee generation figures. Based on the study, there have been minor fluctuations in all land uses, which is to be expected over a 10 year period. The table below outlines those changes: P102 II. Page 2 of 2 It is important to note that the land use code currently aggregates all similar businesses into general land use categories for purposes of mitigation and impacts fees – for instance, retail, restaurant, and galleries are all considered “commercial uses,” and a small lodge and a large lodge are both considered “lodge uses.” The generation rates are then based on zone district, with different generation rates in the downtown, SCI zone, and on Main Street (Mixed Use Zone). This standardization ensures that all businesses within specific geographic areas are treated fairly, and that the city is not in a position to require affordable housing mitigation every time a tenant changes in a particular space. The study includes some information on comparable communities. This information does not impact Aspen’s numbers, but is intended to provide a general idea of where Aspen’s employee generation numbers fit amongst other resorts. EPS as also included an analysis of what other communities require in terms of mitigation rates. NEXT STEPS: Based on the survey data, staff is interested in surveying an additional group of lodges to ensure the mitigation levels are accurate. The hotels surveyed are all larger, and may not reflect employment patterns in the smaller lodges. EPS also recommends surveying some additional service uses. This can be done over the next few weeks and the study updated accordingly. The Land Use Code will need to be updated to reflect the revised employee generation numbers. Staff plans on bringing that code amendment forward to City Council in January ATTACHMENTS: EXHIBIT A: Draft Employee Generation Study P103 II. D RAFT M EMORANDUM To: Jessica Garrow, City of Aspen Long Range Planner From: David Schwartz and Andy Knudtsen, Economic & Planning Systems Subject: Employment Generation Rate Updates Date: December 7, 2012 Background The City of Aspen contracted with Economic & Planning Systems (EPS) to update its employee generation rates from 2002 for the Growth Management Quota System (GMQS). Given the economic volatility of the last decade, employment levels have fluctuated and certain conditions, such as the housing and financial crisis, have contributed to shifts in employment in the City. The timing of this project allows for a simultaneous update of employment generation rates and also an examination of the underlying trends. In this environment, providing and implementing affordable workforce housing policy solutions continue to be a critical component of the City of Aspen’s long-range and land use planning efforts. Methodology Since this analysis will be used to update development code standards in the GMQS with the current employee generation rates based on a representative survey of businesses, EPS recognizes the importance of surveying a sample of businesses not only representative of the commercial uses most likely to be included in redevelopment proposals in the downtown area, but also representative of the distribution of employment by industry in the City. P104 II. Draft Memorandum December 7, 2012 Employment Generation Rates Page 2 123053-DR-120712 Accordingly, EPS and City of Aspen staff surveyed 111 businesses in September 2012. The businesses included in this effort reflect the distribution shown in the City’s business license records, as well as the distribution of establishments in the Colorado Department of Labor and Employment (see Table 1). A copy of the survey instrument is included in the Appendix of this memo, as well as other supporting materials. Table 1 compares data from the Colorado Department of Labor & Employment (CDLE) Quarterly Census of Employment and Wages (QCEW) with data from the survey sample. Each contains the count of establishments and jobs. In 2011, the Department of Labor reported 10,261 wage and salary jobs in the City of Aspen. The 2012 survey results account for approximately 13 percent (or 1,286) of the city’s jobs. Table 1 Survey Sample Characteristics City of Aspen Employee Generation Study Est.Jobs See Note [2] Business Type Hotel282%1,18712%98%37829%32%32% Office - Business / Professional35630%1,90519%1917%18715%5%10% Office - Nonprofit / Civic292%1,46314%65%453%21%3% Real Estate22319%8488%1211%897%5%10% Restaurant / Bar1018%1,75217%1614%33726%16%19% Retail17114%9379%3632%14711%21%16% Services 290 24%2,169 21%13 12%103 8%4%5% Total1,198100%10,261100%111100%1,286100%9%13% Note [2]: These job counts have been seasonally adjusted and are reported as totals of PT and FT jobs. Source: Colorado Department of Labor & Employment; Economic & Planning Systems H:\123053-Aspen Employee Generation Study\Data\Survey Design\[123053-Survey-120512.xlsm]t1 - Survey Stats as % of CDLESurvey (2012)CDLE (2011) Note [1]: These are seasonally-adjusted Wage & Salary jobs as reported by the Bureau of Labor Statistics; EPS has categorized them by the City's land use groups. EstablishmentsJobsEstablishmentsJobs See Note [1] The consultant team and City staff interviewed the managers or owners of local businesses and organizations. Most interviews were conducted on-site while some were completed through follow-up telephone calls. The survey included 12 questions and requested information about the number of hours worked by each employee. The data provided by employers represents both job totals as well as full-time equivalency (FTEs). Business owners were asked about summer and winter staffing, as well as several other questions concerning issues such as housing availability affecting their ability to hire qualified staff, which is presented at the end of this memorandum. As shown in Figure 1, nearly half of all responding businesses have been in operation in Aspen for more than 20 years, making the survey sample representative of established business operations. Approximately 20 percent of businesses have operated in Aspen for 10 to 20 years, and 35 percent of businesses surveyed have operating in the City for fewer than 10 years. P105 II. Draft Memorandum December 7, 2012 Employment Generation Rates Page 3 123053-DR-120712 Figure 1 Survey Respondents, Years in Aspen Employee Generation Study 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Less than 2 years2 to 5 years5 to 10 years10 to 20 yearsMore than 20 years Source: Economic & Planning Systems Employee Generation The following illustrates the location of businesses surveyed. EPS and city staff targeted specific locations in the City to achieve desired response rates by business type and zone district. Figure 2 Businesses Surveyed by Zone District Employee Generation Study P106 II. Draft Memorandum December 7, 2012 Employment Generation Rates Page 4 123053-DR-120712 As mentioned previously, the data collected are representative of both jobs and FTEs. The following figure illustrates the FTE generation rates of the 111 businesses surveyed. The x-axis reflects a point in the chart for each business and has been grouped by business type. While a vast majority of businesses in the City generate fewer than five FTEs per 1,000 square feet, a few business types generate considerably more, depending on the intensity of their use. Hotels and lodges, not shown (as they are measured in FTEs per room), range from approximately 0.1 employees per room to 2.0 employees per room, depending on its service level. Figure 3 Employee Generation Rates by Land Use Employee Generation Study 0.00 5.00 10.00 15.00 20.00 25.00 020406080100120 Fu l l t i m e  Eq u i v a l e n t s   pe r  1, 0 0 0  sq f t   Businesses Surveyed Office ‐ Business / Professional Office ‐ Nonprofit / Civic Real Estate Restaurant / Bar Retail Services Source: Economic & Planning Systems Rates by Business Type Businesses in Aspen generate an average of 4.5 full-time equivalents (FTEs) per one thousand square feet, as shown in Table 2. Note this overall average excludes hotel and lodge generation rates, which use the metric per room. Among the seven business types, generation rates range from 2.5 FTEs (retail) to 9.9 FTEs (restaurant / bar) per 1,000 square feet. The generation rate for hotel and lodge uses is 0.5 FTEs per room. These rates represent an increase over the generation rates estimated in 2002 for the City. The overall rate has increased from 3.9 FTEs per 1,000 square feet to 4.5 FTEs. It seems more employees are being utilized in the same amount of space than a decade ago. Some very slight adjustments up and down occurred, such as hotel and lodge rates, retail, as well as nonprofit and civic uses. Some changes were more pronounced, including restaurants and bars in particular, followed by services, real estate, and business professional office uses. The smallest change occurred in nonprofit and civic uses, retail, and hotel uses did not change. Office business professional and real estate uses declined, but restaurant and services increased. P107 II. Draft Memorandum December 7, 2012 Employment Generation Rates Page 5 123053-DR-120712 Table 2 Employee Generation Rates Employee Generation Study 2002 n =2012 n = Business Type Office - Business / Professional4.4 per 1,000 sqft 12 3.6 per 1,000 sqft 19 Office - Nonprofit / Civic3.7 per 1,000 sqft 6 3.9 per 1,000 sqft 6 Real Estate6.0 per 1,000 sqft 2 4.1 per 1,000 sqft 12 Restaurant / Bar7.3 per 1,000 sqft 13 9.9 per 1,000 sqft 16 Retail2.6 per 1,000 sqft 34 2.5 per 1,000 sqft 36 Services3.3 per 1,000 sqft 10 4.8 per 1,000 sqft 13 Hotel 0.5 per room 3 0.5 per room 9 Overall [1]3.9 per 1,000 sqft 80 4.5 per 1,000 sqft 111 Note [1]: Excludes hotel / lodge. Source: Economic & Planning Systems H:\123053-Aspen Employee Generation Study\Data\Survey Design\[123053-Survey-120512.xlsm]t2 - Rates by Type Variation in Employment Two factors contribute to variation in employee generation rates – seasonality and the level on which the business is located. Employers were asked about the seasonal fluctuation in employment of part-time and full-time employees during high and low seasons. Figure 4 illustrates this seasonality by business type. As with most resort-oriented economies, employment levels in the hospitality industry (hotels and lodges, as well as retailers, restaurants and bars) fluctuates greatly from high to low season to season. Figure 4 Seasonal Variation in Rates Employee Generation Study 0 50 100 150 200 250 300 350 400 450 500 HotelRetailRestaurant / Bar Office ‐ Nonprofit / Civic Office ‐ Business / Professional Real EstateServices Fu l l t i m e   Eq u i v a l e n t s High Season Low Season Source: Economic & Planning Systems P108 II. Draft Memorandum December 7, 2012 Employment Generation Rates Page 6 123053-DR-120712 Figure 5 illustrates the range of generation rates by floor level. Overall, generation rates range between 4 and nearly 8 FTEs per 1,000 square feet, depending on level. For business professional and services, upper levels generate higher intensity uses, whereas basement levels had lower uses and the rates of those on street levels (including basement and / or upper levels) fell toward the lower end of the spectrum. For restaurants, rates were higher for businesses sampled with an upper level, but the majority of restaurant rates occurred below 10 FTEs per 1,000 square feet, as indicated previously in Table 2. Figure 5 Generation Rates by Floor Level Employee Generation Study 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 Office ‐ Business / Professional Office ‐ Nonprofit / Civic Real EstateRestaurant / BarRetailServicesTotal Jo b s  pe r  1, 0 0 0  sq f t   Variation  in Employee Generation Rates Basement Street (incl Basement and / or Upper) Upper Levels Source: Economic & Planning Systems Rates by Zone District Updated rates by zone district for 2012 are shown below contrasted to the existing 2002 rates. Overall, rates have increased slightly. In the City’s GMQS, four zone districts are aggregated in a general commercial district (commercial, commercial core, neighborhood commercial, and commercial lodge), which generate an average of 4.1 FTEs per 1,000 square feet. Using 2012 employment information, the aggregation of these same zone district businesses yields an average of 4.5 FTEs per 1,000 square feet. Two rates have changed slightly, including the hotel and lodge rate, as well as the Mixed-Use zone rate. The hotel and lodge rate has remained constant at 0.5 FTEs per room, and the rate for mixed-use has decreased to 3.6 FTEs. The most substantial increases are in public and SCI (service, commercial, industrial) districts, which have increased by 1.2 FTEs and 1.7 FTEs, respectively. P109 II. Draft Memorandum December 7, 2012 Employment Generation Rates Page 7 123053-DR-120712 Table 3 Generation Rates by Zone District City of Aspen Employee Generation Study 20022012Change Zone District Commercialn/a4.5 per 1,000 sqftn/a Commercial Coren/a4.8 per 1,000 sqftn/a Neighborhood Commercialn/a4.1 per 1,000 sqftn/a Commercial Lodgen/a 3.2 per 1,000 sqft n/a Zone Average4.1 per 1,000 sqft4.6 per 1,000 sqft0.5 per 1,000 sqft Hotel / Lodge0.5 per room0.5 per room0.0 per room Mixed-Use3.7 per 1,000 sqft3.6 per 1,000 sqft-0.1 per 1,000 sqft Public3.9 per 1,000 sqft5.1 per 1,000 sqft1.2 per 1,000 sqft Service / Commercial / Industrial3.5 per 1,000 sqft5.2 per 1,000 sqft1.7 per 1,000 sqft Source: Economic & Planning Systems H:\123053-Aspen Employee Generation Study\Data\Survey Design\[123053-Survey-120512.xlsm]t3 - Rates by Zone Comparable Community Implementation Issues This section provides a general overview of several comparable mountain communities’ commercial linkage implementation programs. Specifically, EPS tried to more clearly understand if these programs supply employee housing units required by the mitigation programs on-site, off-site, or whether developers often pay fees-in-lieu. In addition, of the off-site units being built, are they concentrated in just a few areas of the community or are they relatively dispersed? How does the community react to this? Finally, we asked whether each community has plans to significantly revise its commercial linkage program in the near future. Telluride The Town of Telluride is relatively successful in having employee housing units generated by its commercial linkage program built on-site. Several factors contribute to this success, including a code that makes it much more complicated to build such units off-site. The Town’s Land Use Code requires more burdensome guidelines for building employee units off- site, and in addition, developers often encounter unfriendly Home Owners Associations which must approve such units within their developments. Town zoning always allows for mixed use development; while the first 35 vertical feet has to be pure commercial use in certain zones, upper floors can always be used for residential, allowing developers to more easily include the required employee units on-site. In addition, commercial developers can only “buy out” of 10 percent of their total mitigation requirements or when the mitigation calls for less than the Employee Generation Rate Business Type Commercial/Public facility Uses4.5 employees per 1,000 s.f. of Net Floor Area Hotels and Accomodations Uses0.33 employees per unit Multi-family Dwelling and Mixed Use Residential0.33 employees per dwelling unit One and Two-family Dwellings0.07(e)(0.000322 X Gross SQFT) Source: Town of Telluride; Economic & Planning Systems H:\123053-Aspen Employee Generation Study\Data\Comp programs research\[Employee Generation Rate Implementation Programs.xlsx]t2 - Telluride P110 II. Draft Memorandum December 7, 2012 Employment Generation Rates Page 8 123053-DR-120712 required minimum 500 square feet per employee unit, further encouraging the building of on-site units. Off-site units built or provided by developers tend to be scattered throughout the town, while the units built using the town’s housing fund are more concentrated in a few developments, mostly toward the western end of town. In general the location and level of concentration of affordable units are not viewed as a problem by the community. In general, Telluride feels its commercial linkage program is working well and meeting its goals, although there is a slight imbalance between affordable units for sale (which are often not being purchased) and available affordable units for rent (which are very scarce). There are no plans to significantly modify the program in the near future. The Town of Telluride currently mitigates commercial and hotel uses consistently at 40 percent of the employee generation rate. San Miguel County The commercial linkage program in San Miguel County was last updated in 2012, and requires that 15 percent mitigation of the employee generation across all use categories. In spite of differentiable use categories, San Miguel County’s generation rates are consistent across uses. The County also has a separate employee impact fee for residential construction jobs (based on floor area) as well as for construction employment. Information is still being collected on this program and may be supplemented for a final memorandum. Vail The Town of Vail’s employee housing mitigation program was established in 2007 and requires that at least 50 percent of employee housing mitigation be provided on-site unless the developer provides sufficient evidence that such units are not possible. The regulations governing such exemptions were modified somewhat in 2008 in response to the economic downturn which has limited commercial development in Vail over the past five years. To the extent that development has occurred, however, this basic requirement has been very successful, although there is a clear distinction between the types of development where on-site mitigation happens. Hotels provide almost all of their required mitigation on-site, while commercial/retail projects generally provide almost all required units off-site. Because the Town of Vail is almost completely built out, there are nearly no available sites for building off-site units. Instead, developers purchase individual condominiums which are then designated as deed-restricted employee housing. These tend to be concentrated in several condominium associations in West Vail. This concentration is generally not viewed as a problem by the community, as many of these buildings have long been employee housing. Thus, new affordable units represent a continuation of current use rather than a noticeable change in use. Employee Generation Rate Business Type Office3 per 1,000 square feet Restaurant3 per 1,000 square feet Retail3 per 1,000 square feet Hotel1.5 per unit Source: San Miguel County; Economic & Planning Systems H:\123053-Aspen Employee Generation Study\Data\Comp programs research\[Employee Generation Rate Implementation Prog P111 II. Draft Memorandum December 7, 2012 Employment Generation Rates Page 9 123053-DR-120712 In general, Vail’s commercial linkage and employee housing mitigation programs are not likely to change significantly in the near future. Two issues that might soon be addressed relate to balancing business needs (lowering development costs) against community needs (providing ample affordable housing), and the concern that the on-site requirement provides only the smallest type of housing units (often dormitory in nature), and fails to create more family-oriented units in the valley. The Town of Vail currently requires a consistent mitigation rate of 20 percent of employees generated by all types of uses. Steamboat Springs The Town of Steamboat Springs is illustrative of the challenges faced by mountain communities when balancing the needs of affordable housing options with economic vitality. The town implemented its first commercial linkage program in the mid-2000s, only to remove the program in the face of the economic crisis in 2008. The town council and planning leadership decided that the additional burdens such a program placed on developers and businesses impeded growth and negatively impacted the business climate. Due to the limited duration of the program’s existence, town planners say it is difficult to ascertain whether the program would have successfully generated the levels of affordable housing needed in Steamboat. Given the still struggling economy and changes in the town council, there are no immediate plans to revive the program. Employee Generation Rate Business Type Accomodation unit/limited service lodge unit0.7 employee per unit Business office and professional office (excluding real estate office)3.2 employees Conference facility0.8 employee Eating and Drinking establishment6.75 employees Health Club 0.96 employee Real estate office5.1 employees Retail store/personal service/repair shop2.4 employees Spa 2.1 employees Source: Town of Vail; Economic & Planning Systems H:\123053-Aspen Employee Generation Study\Data\Comp programs research\[Employee Generation Rate Implementation Programs.xlsx]t1 - Vail P112 II. Draft Memorandum December 7, 2012 Employment Generation Rates Page 10 123053-DR-120712 Trends & Issues This section provides additional contextual information about the City of Aspen’s employment trends, as well as issues cited by businesses surveyed. Employment Trends The following chart illustrates the trend in wage and salary jobs for the City as well as number of establishments. Between 2002 and 2007, the increase in jobs outpaced the growth in establishments, implying more intense use of space (i.e. possibly higher employee generation rates than represented by the 2002 or 2012 survey data). The growth in employment was largely attributable to the increase of jobs in the office professional businesses, as shown in the Appendix Figure A1). From the onset of the recession in 2007, employment fell more considerably than the number of establishments, bringing the two metrics in line proportionally, implying a rebalance of employment intensity per establishment. (It should be noted here that CDLE does not report on floor area of establishment.) Figure 6 Wage & Salary Job Trends Employee Generation Study 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000 14,000 20012002200320042005200620072008200920102011 EstablishmentsJobs Jobs Establishments Source: CDLE, Quarterly Censusof Employment & Wages; Economic & Planning Systems 7%over 2001 Projection of Employment Employers were asked whether they planned to increase or decrease their workforce for next year or hold it constant. The net effect of those changes is illustrated in Figure 7. Hotels and services indicated their intent to increase their workforces by approximately 16 percent in the following year, followed by real estate and business professional office users at approximately 8 percent. Nonprofits indicated they would increase jobs by approximately 2 percent, but retail and restaurants planned for no net change. It should be noted that not all businesses gave a response to these questions (this represents 83 of 111 businesses). Furthermore, it was anticipated that retailers and restaurant owners would not forecast hiring more staff over the next year, as these industries are highly dependent on the growth and demand from other sectors of the economy. P113 II. Draft Memorandum December 7, 2012 Employment Generation Rates Page 11 123053-DR-120712 Figure 1 Wage & Salary Job Trends Employee Generation Study 16.4% 8.3% 2.4% 8.6% 0.0% 0.0% 15.6% 0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%18.0% Projected Change in Employment Next Year  (2013) Services Retail Restaurant / Bar Real Estate Office ‐ Nonprofit / Civic Office ‐ Business / Professional Hotel Source: Economic & Planning Systems Employers were also asked whether they considered the availability of housing to be an impediment to hiring qualified staff. Interestingly, in 2002 more than half of businesses (54 percent) indicated that it was a major concern versus just 32 percent. Still, 22 percent viewed it then and now as a minor concern, but nearly half do not see it now as an issue today. Table 4 Impact of Housing on Ability to Hire City of Aspen Employee Generation Study Major Concern Minor ConcernNot an Issuen = Business Type Hotel80%0%20%5 Office - Business / Professional31%23%46%13 Office - Nonprofit / Civic25%0%75%4 Real Estate25%38%38%8 Restaurant / Bar33%25%42%12 Retail23%14%64%22 Services 33%44%22%9 Total32%22%47%73 in 200254%22%23%81 Source: Economic & Planning Systems H:\123053-Aspen Employee Generation Study\Data\Survey Design\[123053-Survey-120512.xlsm]t4 - Housing Avail Housing Availability as Problem P114 II. Draft Memorandum December 7, 2012 Employment Generation Rates Page 12 123053-DR-120712 Implementation Based on these considerations, it is recommended that the City of Aspen to continue with the current system of requiring mitigation at time of development approval, using the updated generation rate data. This recommendation is based on the following considerations.  Use vs. Zone District: EPS recommends that the City continue to estimate employee generation on the basis of zone district as opposed to business type. Changing the administration of the program to mitigate on the basis of business type would require a complex administrative effort.  Mitigation Rate: It is recommended that the City of Aspen maintain a consistent mitigation requirement across all zone districts. Comparable communities, such as San Miguel County, the Town of Telluride, and the Town of Vail also maintain consistent mitigation rates across various commercial uses. Based on the evolution of local business activity over the past decade, average employee generation rates have increased by 12 percent. Accordingly, it is recommended that the City keep its standard current with business practices and increase its rates to reflect changes over the past decade. P115 II. Draft Memorandum December 7, 2012 Employment Generation Rates Page 13 123053-DR-120712 Appendix Survey Instrument P116 II. Draft Memorandum December 7, 2012 Employment Generation Rates Page 14 123053-DR-120712 Figure A1 Wage & Salary Job Trends Employee Generation Study 0 1,500 3,000 4,500 6,000 7,500 9,000 10,500 12,000 13,500 15,000 20012002200320042005200620072008200920102011 Jo b s  by   Bu s i n e s s  Ty p e Hotel / Lodge Office ‐ Business, Professional Office ‐ Nonprofit, Civic Real Estate Restaurant, Bar Retail Services Other Source:CDLE,QCEW;Economic &Planning Systems Figure A2 Wage & Salary Job Trends Employee Generation Study 0 100 200 300 400 500 600 700 800 900 1,000 5 years agoCurrent Jo b s  by   Bu s i n e s s  Ty p e Hotel Office ‐ Business / Professional Office ‐ Nonprofit / Civic Real Estate Restaurant / Bar Retail Services Source:CDLE,QCEW;Economic &Planning Systems P117 II.