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Advice for Entrepreneurs

It’s really about “the passion”

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Dave Sharp an AP journalist in Maine discovered that CNL, a Florida-based real estate investment trust, (“REIT”), put its lifestyle portfolio up for sale through the investment bank, Jefferies, Inc. This must be a very significant event and because of its importance, it must therefore be a dramatic change for skiers who visit the impacted ski areas and resorts…well maybe not.  However, there are profound changes taking place at ski areas and ski focused resorts across North America that will change the sport of skiing for the future.

Skiing  as we know it today, an outdoor recreational activity suitable for competitive and non-competitive people alike, had its birth in the U.S. not much more than 60 years ago.  More  to my point, it was pursued by those with a passion for the outdoors and particularly  a passion for sliding down hills on skis with other like minded folks, enjoying meals together, drinks together, telling tales together and competing with each other.  It was an opportunity for social interaction in the outdoors.

Pioneers/Developers/Promoters of skiing are well-known to those who enjoy the sport such as Ernie Blake, developer of Taos, NM;  Ev Kircher developer of Modest Hills in  Michigan; Preston Smith who spent nights on Killington Mountain in Vermont to measure snowfall; W alt Schoenknecht  designer of  Mount Snow, Ski Sundown and Mohawk Mountain; Orville and Izzy Slutzky creators of Hunter Mountain in New York’s Catskill Mountains…the list goes on.  Hands on, family people who had a vision, and a passion.

Many of the remaining (approximately) 447 ski areas in the U.S. are owned and operated by second and third generations of  first generation ski area developers.

What has any of this to do with Dave Sharp’s article?  Owning and operating a ski area or a ski-focused resort takes passion, high-risk tolerance, capital and strong banking relationships.  It requires a long-term perhaps multi-generational outlook.

Publicly traded investments typically fall short of the above criteria.    The two REITs mentioned above have certainly showed the financial discipline necessary to operate cold weather resorts and they both have the required passion as well.  Both CNL & EPR are managed by Alpine and Nordic snow sports enthusiasts who appreciate these sports, resorts, and social interaction provided by them.

What happens when a dispassionate investor takes on the CNL portfolio and applies typical “Wall Street” timing and demands to the CNL Portfolio of ski areas and resorts?

What might happen is growth capital may dry up.  What may happen is that the underwriting criteria necessary to analyze a request for growth capital may become such that growth at ski areas becomes unsustainable.  It takes, perhaps, a lifetime to understand the business of skiing.  What to invest in, when to invest in it, how much risk to take with limited capital and high cost of debt.  Will the next investors CNL’s REIT be capable of making those decisions within the context of their investment criteria.

Go back to a thought previously expressed:  “Hands on, family people who had a vision, and a passion.  Many of the remaining (approximately) 447 ski areas in the United States are owned and operated by second and third generations of first generation ski area developers.”  These Owner/Operators have the patience and the passion to, (pun alert), “weather” the ups and downs of operating weather dependent, discretionary dollar-dependent, seasonal businesses.

These are the business people who have the discipline to create cash reserves, invest when their available capital is great enough to create the growth opportunity envisioned.  They take the risks, look out multi-years, engage family in the business and provide entertainment and employment in their communities.  These are the business owners who can resist double-digit debt, who understand the mantra, “I cannot overpay,”  while simultaneously dragging snow-making hoses and driving cats, flipping burgers and running lifts.

To date, the two REITS that have invested significantly in cold weather resorts have provided more than adequate growth capital to their lessees, meaningful advice and counsel to those lessees as to where to invest at their respective resorts.  They have been “the source” of meaningful growth capital to the lessee resorts.  If that willingness to invest in growth opportunities at the REIT owned resorts is diminished, then the resort guests will be disadvantaged.  Perhaps that is the point Dave Sharp was making in his recent article.

In summary, investments should be viewed as long-term, especially those in the resort, recreation, hospitality spaces and certainly where weather and seasonality play a role.  To those looking at acquiring the CNL portfolio, to those resort companies that are publicly traded,  take the long-term view, become passionately involved in the sport and the business of ski resorts and aggressively promote the sport and sponsor its growth, so that future generations can enjoy  all that Alpine and Nordic sports have to offer…Be passionate.