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LEASEBACK
MOUNTAIN COMMUNES AND SKI RESORTS FACE AN INTRICATE BALANCE BETWEEN
ALLOWING DEVELOPERS TO BUILD WHAT INVESTORS WANT TO BUY AND WHAT TOUR
AND CHALET OPERATORS WANT TO RENT.
Prolific chalet development in the prime resorts has made many local farmers and land owners wealthy in
the last few decades. This does not always translate however to riches for the lift operators, especially if
those chalets lie dormant for albeit a few weeks per annum. The French invented the leaseback concept
in the 1980’s to address this very issue. It was extremely successful and popular for investors with smaller
budgets and who were looking to offset their annual borrowing costs from income. Net yields of 5%
were not unheard of. As property values increased, yields failed to keep pace with capital appreciation,
resulting in yield compression and thus limiting the investment appeal. Net yields are now closer to 2.5%
in many resorts.
Despite this, leaseback remains a valuable concept in both the French and Austrian Alps and an instrument
through which new projects can come out of the ground. The returns may be less than they once were,
but managed rental pools are fundamental to maintaining the viability of touristic residences. The Swiss
are reluctantly having to embrace the same model, not least because these types of developments are the
only ones which bypass the Lex Weber classification of a second home. The recent sell out of the Seven
Heavens scheme in
Zermatt
is illustrative that this model can also work at the prime end of the market.
Buyers will vote as always, with their skis.