By the mid-1950s, Sugar Bowl was developing at a fast pace. Financed by such notables as Walt Disney and affluent San Francisco Bay area families, the Donner Summit resort had opened in 1939 with California's first aerial chairlift and a Bavarian-style lodge designed by William Wurster.

By 1957, thirty homes had been completed in the forests surrounding the lodge, more than enough for some stockholders who fancied the resort their private playground. Under pressure, Sugar Bowl directors refused to grant permission to twelve families who wanted to build chalets. A revolutionary alternative was proposed: joint ownership of twelve individually owned apartments on one large lot. The idea was accepted. Thus, condominiums were introduced into the ski industry. The attraction of Sugar Bowl's co-op Snow White apartments paved the way for the village concept at ski resorts throughout North America.

Today, the Grand Dame of Sierra Nevada ski resorts continues to sweeten its historic property by building modern day base facilities and condominiums as well as town homes and slopeside lots that start at $850,000.

They aren't alone.

Across the country, from Massanutten in Virginia to Mammoth Mountain, California, resorts are shelling out huge dollars for long-term real estate and mountain development projects. Seven Springs, Pa., is implementing a $100 million townhouse development. Mountain Creek, N.J., is moving to complete a $750 million resort master plan. A $1 billion Vail renewal project to rebuild the resort's infrastructure and mountain resort community is underway. In Lake Tahoe, Kirkwood, Heavenly, Squaw Valley and Northstar are sinking more than $1 billion in base villages.

But the real estate boom that has attracted billions of dollars from investors and allowed many resorts to rise from stagnation into economic growth has also drawn criticism and elicited concerns about another real-estate bubble.

A Changed Business

"Winter sports have become an amenity to real estate projects and instant villages," says Bob Roberts, executive director of the California Ski Industry Association. "Clearly at the higher end of the destination market, resorts have to supply a more upscale product. The changes at Lake Tahoe and Mammoth are in keeping with the competition in Colorado, the Wasatch and the East. Many view it as a conundrum to snowsports in general."

The North American snowsports industry has long celebrated its counterculture mythology: outdoorsy achievers hunkered near the wood burner after an invigorating day on the slopes; drinking hot toddies and flirting in the hot tub. But the pioneering resort lifestyle has been replaced at many resorts by new concepts and differing attitudes. Snowsports' once freewheeling frontier is now consolidated and corporatized, often financed by interests outside the sport with high expectations for returns on their investments. To many within this new generation of resort operator, it is real estate that stokes the sport's best prospects for growth. Purists worry that the emphasis on real estate will drown the sporting experience.

The debate centers on the balance between on-mountain improvements versus real estate investment. Which is going to be most important for a resort's long term success? Can a resort both satisfy its customers' demands and retain its character? Is that even necessary? What should be the modern age rule of thumb?

James Chung of Reach Advisors, a Boston-based marketing, strategy and research firm, pulls no punches when he flatly states, "For the most part there remain only two strategies: You sell real estate for which the mountain is the amenity, or sell a lot of lift tickets and cheeseburgers. Which strategy do you think is going to make more money?"

According to NSAA, capital improvements at 153 surveyed ski industry resorts increased slightly from 2004-05 ($337 million) to 2005-06 ($343 million), and are projected to jump to $462 million in 2006-07. Spending for on-mountain improvements during the coming year is projected at a whopping $163 million, but real estate is projected to account for the largest share of overall investments and nearly double that of on-mountain projects.

Vail: What the Guest Wants

"I never think about rules of thumb or a question of balance, but instead what the guest wants," says Bill Jensen, co-president of Vail Resorts' mountain division and chief operating officer for Vail Mountain. "More and more destination resorts are emphasizing the guest's 24-hour experience, not just the six-hour onhill experience."

Currently the resort is in the midst of a major overhaul, which includes the addition of The Arrabelle at Vail Square and the Front Door in Vail Village. The Arrabelle development in LionsHead will include many new skier services with a European-style plaza, outdoor ice skating rink, new dining and shopping options and spa amenities, plus a 36-room RockResort luxury hotel slated to open late in 2007. Throughout the community a variety of public and private projects are underway, which to Jensen will improve the overall visitor's experience.

"The construction costs of building on-mountain facilities and lifts have increased," he adds. "A detachable lift that cost one to three million dollars 10 years ago has tripled in installation costs. To spend 10 to 15 million dollars for a four-month period of usage has made for tough business decisions. At the end of the day, you have to ask yourself what represents the best opportunity for your business. There's no doubt that real estate increases a resort's revenue. It's an investment in a better resort experience for the guest, adding new customers, creating more beds and creating profits that ultimately can be reinvested toward the ski experience."

Putting the Mountain First

Others are more focused on the on-hill experience-though it should be noted that Vail's on-mountain attractions are also rather substantial.

"You can make the argument what drives what, depending on what hat you're wearing," says Sky Foulkes, GM of Mountain Creek, N.J., and Stratton, Vt. "To me, however, it's the mountain that drives the real estate. Without your onhill amenities, I don't believe the real estate will be as attractive a package."

Booth Creek marketing VP Julie Maurer concurs: "Northstar-at-Tahoe is absolutely a balance. Booth Creek is really making a concerted effort to keep the mountain development and the real estate development proportionate to each other."

At buildout, the Northstar Village will include an array of new buildings, with 213 luxury one- to four-bedroom condominiums. The first phase of construction includes three buildings and will open this winter season. Iron Horse North and South include 72 condominiums, with commercial space on the ground floor. The Great Bear Lodge includes 28 condominiums, shops, restaurants, and an ice skating rink.

East West Partners, Northstar's Village developer, has already begun building phase two of the new village, scheduled for completion in December 2007. This includes 92 condominiums and 40,000 square feet of additional retail space. Construction has also begun on a 400-room mid mountain Ritz Carlton hotel.

In conjunction with the real estate, Northstar has launched the next phase of its mountain improvement plan, which includes two new lifts, relocating the cross-country center, adding new parking lots, expanding its snowmaking system, and adding terrain. Mountain improvements already completed include the opening of Lookout Mountain and the addition of the $4 million Village Express, which opened for the 2004-05 season.

"Our goal over the course of the next 10 years is to attract a million visitors to the mountain, practically double what we do now," says Maurer. "The only way we can achieve this is with a mountain improvement plan that is slated to expand from our current 2,420 skiable acres to 3,400 skiable acres."

Real Estate as Funding Source

Northstar enjoys the luxury of having two of the ski industry's bigger players, Booth Creek and East West Partners, backing its expansion. That enables the area to maintain a philosophy of patient capital. But some independent, middle-tier and smaller resorts have also shown patience (willingly or otherwise).

"The reality is that, with today's construction costs, it's hard to make on-slope development pay off. The only way for many resorts, especially the smaller ones, to raise the funds are by their real estate projects," says Chung. "It's far from a horrible thing. It allows a good mountain that maybe has gone to seed to bring itself back up to the level of the customer's demand. Quickly, those new lifts, facilities and trails are going to play a bigger role and deliver profits."

One area that has navigated the balance of real estate development with the need to improve and expand base facilities is Sugarbush, Vt. After decades of proposals and plans for massive and grandiose hotels and expansive villages, the area settled on a smaller-scale plan.

"They are doing a great job at using real estate to fund a desperately needed buildout of the base facilities in a fairly rational manner," says Chung. "There's a big difference between last year's cramped base facilities versus this fall's amazing base facilities. All the improvements have been funded by real estate development that hasn't gotten in the way of the skier experience."

Aside from added grooming machines and other on-slope investments, the slopeside Lincoln Peak Village now features a new 23,000-square-foot Gate House lodge, double the size of the previous base lodge, and a 150-seat upscale restaurant. It was all made possible by adding 61 affordable rental units which are available for whole or fractional ownership. Total cost for the entire project: $60 million.

"As an owner but more importantly a skier, I recognize the need to create the proper balance between development and the on-mountain experience," says Sugarbush's Win Smith. "We had to offer our guests a new base village as a deserved amenity to their ski/ride experience. There was also a demand for newer, more modern slopeside living units.

"However, we maintained the aesthetics of our mountain. The new Lincoln Peak Village is the fulfillment of a promise we made to our day and destination skier/rider."

Sugar Bowl is another example of just how good a thing measured real estate development can be. The area has been particularly careful to retain its intimate feel while adding to its bedbase. "When we first began to revitalize Sugar Bowl in the 1990s we looked at what should come first," says Rob Kautz, president. "We looked at what could maximize value out of the resort, and decided that we had to improve the mountain. As a result, our first dollars went into installing modern chairlifts and making our mountain a more user-friendly experience. At the same time, it was our initial sale of slopeside lots that gave us the money to reinvest for these improvements."

In 1994 Sugar Bowl opened the Mount Judah side of the resort, and since then has spent $45 million on mountain improvements, including the installation of five detachable chairlifts.

"Our ownership is very mountain-experience driven. They are ski and snowboard enthusiasts," says Kautz, a past chairman of the NSAA. "We've always had land to develop, but our ownership made some hard decisions about how to develop the village and surrounding lands without degrading the mountain experience. We very much wanted to maintain the character and ambience of Sugar Bowl."

Since 1998, Sugar Bowl has developed 36 snowbound lots and 24 town homes, and is in the midst of building 64 new condominiums. "Like many resorts we've utilized our profits from real estate sales to invest back into the mountain, and in that regard we've worked hard to improve the ski experience. But our ownership remains very cautious towards real estate. They are not as interested in maximizing capacity as much as looking at long-term goals. At the same time, we understand the need to develop warmer beds, and therefore have designed and priced the new condominiums for the rental pool."

Both Sugarbush and Sugar Bowl reflect a belief that, for their customers, the mountain experience is a 24-hour thing, not just about the six or eight hours the lifts are running.

Real Estate Slowdown Ahead?

Sugar Bowl's cautionary view toward real estate seems prudent, given the slower home-price growth across the nation. "One of our key messages to resorts is that the past five years are not a predictor for the next five years for resort development," Chung says. "Supply always reacts to demand, and although many resorts are already locked and loaded and in the middle of huge expansions, they might start rewriting their assumptions."

As interest rates have increased and housing prices in the nation's hottest markets have stalled, some resorts are feeling the pinch. "Speculators are now seeing the ski resort market as flat," says Squaw Valley realtor (and 1998 Olympic speed skiing bronze medalist) Jeff Hamilton. "They realize that they are not going to be able to turn over their property in a year or two for a 20 percent profit. As a result, the market has slowed. Although 65 percent of the townhomes and condos in Squaw Valley are still rentals, the buyers these days want to utilize their property and enjoy the mountain experience with family and friends. That's actually a healthy situation for the resort."

The Question of Balance

Ted Farwell of Winterstar Valuations, Inc., a ski area consultant and appraiser for more than 40 years, bemoans the tension between the short-term goal of making money and the long-term goal of creating a viable and visitor-packed resort village. He believes the utilization of real estate at ski resorts for rental over high-end real estate is key to success.

"I subscribe to a rule of balance. Thus a resort's investment decisions must be based upon an analysis of the resort's utilization by its guests.

"No enlightened ski area CEO should build accommodations that are not available for rental, i.e. 'hot-beds,'"says Farwell. "Real estate should run at some 80 percent to 90 percent occupancy during the ski season. That implies the cost of lodging should be kept as low as necessary, not as high as possible. Once a resort can achieve a high percentage of utilization of the mountain facilities, then it can look to other areas of developing its real estate."

That's one way to look at it.

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The SAMMY Guest Editor's Take

Being a Guest Editor is great. I get to make commentary and profound judgments about subjects for which I have no qualifications whatsoever-just like a real editor.

As far as the balance between real estate development vs. on-mountain improvements, it seems to me that balance is all relative. Most people perceive "fair and balanced" as "A state of being that brings the most pleasure to me."

Balance to Bode Miller isn't quite the same concept as it is for Grandma Turner. The guy who sells plywood thinks that hurricanes are a gift from God. And Joe Vanderkelen (SMI Snowmakers) is sending Al Gore's movie to all the ski areas with an order form for snow guns.

As far as my specific opinion goes on the ski industry, I like Bill Jensen's view, whatever it is. He runs the show at Vail and is the new chairman of the National Ski Areas Association. Hey, my momma didn't raise a complete fool.

-Jack Turner