From the desk of Led Gardner…

Luxury Market Update Late Fall, 2009

Vail Village, �ovember 16, 2009

3rd Quarter, 2009

Luxury Market Update

“We simply attempt to be fearful when others are greedy…

and to be greedy only when others are fearful.” This famous maxim from investor Warren Buffett is as applicable to today’s real estate market as it has been for many years. When was the last time that you saw “Vail on Sale”? For most of us, it’s been over twenty years… if ever! Yet those in the business have consistently been surprised to see the unprecedented values that buyers have realized over the past few months, with overall prices down in the range of 20% - 30% when compared with 18 – 24 months ago. The most recent sales numbers are hot off the press, and are reflective of the above. Year-to-date sales dollar volume is currently off 62% from 2008, with $633 million in sales. Transaction volume is doing a bit better, down approximately 46%. Though our average residential sales price currently stands at $1.145 million, over 40% of this year’s deals have been for under $500,000, and 70% have been under $1 million. Vail Village, Beaver Creek and Arrowhead are leading the way this year, each with appx $66 million in sales. Cordillera is following closely behind, with year-to-date sales of ap-proximately $56 million.

Our luxury market is showing signs of life, however, and in a notable way! A $22 million listing in Beaver Creek was placed under contract in October, followed by the $11.25 million closing of a beautiful spec home in Bachelor Gulch. Add in the $15.5 million sale of a Mountain Star estate last summer, and you’ve got three of the largest residential transactions in the history of the Vail Valley, remarkable given the cur-rent economic environment. Deals such as these will go far in bolster-ing the confidence of our overall market… and encouraging those who are currently “sitting on the fence” to make a move now so as to take advantage of the rare window of opportunity which currently exists.

“Only when the tide goes out do you discover who's been swimming naked.” Yet another famous Buffett quip, and another that can be readily applied to today’s market. For the past 5 - 7 years, the aggressive growth and strong sales activity in our market have enabled many developers of specula-tive property to “swim naked” while profiting the whole time. Yet the game changed a year ago. Given the current conditions, many of these same players have been caught with their trunks down… or missing alto-gether… thus opening the door to superb opportunities for buyers of their properties.

Under Contract, Beaver Creek

Recently Sold, Bachelor Gulch

What does this mean to you? As a prospective buyer, you can consider the “tide” of Vail Valley real estate as out as it has been in many years… resulting in the availability of many a significant “deal”. If you are currently positioned to acquire real estate, this is perhaps the best time to make a move as we’ve seen since the early ‘80’s. There is a rich inven-tory of very attractive properties from which to choose throughout the Vail Valley. Prices are down considera-bly over years past. And seller psychology is currently such that, in many cases (especially with new speculative product), buyers have the opportunity to realize a fantastic value.

Selling your property? If selling your property, know that aggressively pricing your resi-dence ahead of the market, and ahead of your competitors, will be one of the main keys to your success. Buyers are understandably looking to strike an aggressive deal, and if they don’t perceive one is available, they’ll just move on to the next property. If you are fortu-nate to attract a buyer, be prepared for them to take a very strong ap-proach to negotiations… as they realize that market conditions cur-rently lean heavily in their favor. If you receive an offer, work it as hard as you can, all-the-while keeping in mind that you hold the final “yes/no” decision. If you can make the deal work, by all means do so. If you hit a point where you just won’t be happy at the clos-ing table, then kindly tell your buyer “no” and hold out for the next one… knowing that it might be awhile for the next buyer is sitting across the desk from you. As painful as it may be, it’s that kind of world at the moment. And keep in mind the strong run-up in value you have received over the past five years, as well as the fact that the tables will eventually turn back in your favor.

What’s coming up the road?

While we undoubtedly still have challenges ahead, factors such as a robust stock market, slowly steadying employment, and continued low interest rates are weaving themselves together in such a ways as to help us turn a corner. The sales activity over the summer and fall months has provided us with a “baseline” for establishing values and pricing, something we did not have coming out of the ski season. When combined with record-setting traffic on our company website and solid showing activity over the past two months, we are entering the ski season with guarded optimism. And while values may con-tinue to dip slightly in the near term, over the long term they remain solid.

Under Contract, Lionshead Penthouse

Recently Sold, Beaver Dam Road

The bottom? Does this mean we're at the bottom? Whether on Wall Street or Bridge Street, no one can accurately predict exactly where the bottom is, nor when things will turn around. But most of the signs suggest we're either at the bottom or quite close. The combination of attractive prices, motivated sellers and low interest rates is almost unprecedented in our market. This is a time unlike any other in recent history of the Vail Valley. And this is one of those windows of opportunity that, for those who buy now, will be looked back upon with great fondness.

Fortunately, three things never change… no matter the economy

We don’t need Warren Buffett to state the obvious in this regard… in spite of the current conditions, we should all keep in mind the three things that will ensure an eventual return to a more balanced market… the beauty of this wonderful place we are blessed to call “home” (even if only part time!)… the world class ski mountains in our back yard… and the desire of so many to share in our amazing lifestyle. As I sit watching the snow fall outside my window this morning, I feel very confident in saying that we will all be fine over the long term… that property values will rebound nicely… and that there remain many memories for you to create with your family and friends in the Vail Valley! After all, as you can see by the letter that fol-lows, that’s what owning a home in our community is all about.

In closing... Please call or email with any questions or comments you might have about our market, or simply to discuss our latest snow conditions… I’ll look forward to being of service in any way possible, and to seeing you up here in the mountains very soon! With my warmest personal regards,

Led Gardner Slifer, Smith & Frampton Real Estate, LLC Cell - 970-376-0223 Email - lgardner@slifer.net Website - www.ledgardner.com

Real Estate Appreciation:

An Owner’s Perspective

By Rick Fall

(Written in the Summer of 1991)

We hear the word “investment” more and more in connection with ownership of property in a resort area. Natu-rally, one wonders what the potential reward of owning a “home” in the Vail Valley might be. Because the economics of individual real estate investments are often difficult to assess, I would like to focus on another aspect of property ownership that we tend to overlook or fail to assign importance to – the personal sat-isfaction gained in bringing a family together at a vacation home in a resort area. My father, from Chicago, provided us with a vacation home in 1963 and the returns on his investment are still being realized, though he has never sold the home to reap the financial rewards of appreciation. What has his investment returned? As youngsters, my brothers, sister and I were able to learn with our parents of a sport, one which we’ve all carried into adulthood. We developed appreciation for the outdoors, respect for the forces of nature and the understanding to enjoy both the harsher and milder times. At early ages, we were given and learned to handle the independence that a town like Vail provides with its pedestrian orientation and excellent bus system. The independence and self-confidence was nourished and expanded by the freedom of movement and the levels of challenge that the fantastic expanses of Vail Mountain provide. Our world was lim-itless compared to the controls necessitated by growing up near a city like Chicago, yet we were always within the safe confines of the ski area. Most importantly, all of the family could get together, even though our skills progressed at different rates, to share the outdoors, the exhilaration of the mountains, and the fun of our shared sport. Whether we were all on the same run or going in different directions, we were never more together. To-day, our Vail “home” is still the one constant for all of us, even though we live in different cities. It is the place where last we were all together and where we will be together again next. Has the value of homes increased? Decidedly so, but that is not the only or even the most valuable “appreciation” we have earned. For how can one ever put a value on the fun, opportunity, learning, challenge, broadening, confidence-building and sharing that our home in Vail, Colorado has given us. Return on investment? Limitless!

Reprinted from “Properties and Profiles/Summer 1991” – a quarterly newsletter published by Slifer Smith & Frampton Real Estate

Rick is a long-time Vail property owner now residing in �aples, Florida.

Inventory Comparison

Eagle County Active Inventory 12 Month Trend *Includes Land and Residential Active Listings

active the third day of each month listed

2,0221,927

1,974

1,7931,851

1,956

2,0552,0152,092

2,1992,2632,174

500

700

900

1,100

1,300

1,500

1,700

1,900

2,100

2,300

2,500

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

While many markets in South Florida, Arizona, Nevada and others witnessed extraordinary bumps in inventory as they entered the downward cycle of the past few years, the Vail Valley has thus far remained fairly resilient to this trend. This is in large part reflective of the ownership in the valley, many of whom will never be in a “must sell” position. Many owners in Vail, Beaver Creek and other areas are simply choosing not to place their properties on the market at this time, instead banking on a rebound in prices that they hope to see in the near future. This “phantom inventory” will likely serve to suppress prices, however, until such time that a better balance of sup-ply and demand is achieved. A similar situation occurred in the late-eighties, when a resurgence in buying ac-tivity gradually worked off excess inventory. Continued strong demand, in conjunction with the new projects which have come to market, eventually resulted in the steep increase in prices we have witnessed over the past fifteen years. So for the time being, “patience” is the operative word...

What do you mean… “Vail on Sale”?

Coming out of the past ski season, no one had a real sense of where our market was heading. Simply put, not enough transactions had occurred during the early months of the year to enable us to gain a real sense of value. As such, pricing property in the early months of the year was often based more on conjecture than fact. Fortunately, the summer/fall selling season saw enough business that we can now begin to establish pricing benchmarks throughout the Vail Valley. The following reflect transactions that are notable not only due to their size, but more specifically, to their reflection in the changes in our market. The sale-to-list prices¹ are eye-catching, and reflective of the type of opportunity that savvy buyers have in today’s market. Cordillera single family Listed @ $3.875mm Sold @ $2.4mm 38.1% off original list Cordillera single family Listed @ $3.895mm Sold @ $2.45mm 37.1% off original list Cordillera single family Listed @ $4.225mm Sold @ $2.6mm 38.5% off original list Cordillera single family Listed @ $3.95mm Sold @ $3.06mm 22.5% off original list Cordillera single family Listed @ $2.75mm Sold@ $1.9mm 30.9% off original list Arrowhead single family Listed @ $4.9mm Sold @ $3.5mm 28.6% off original list Arrowhead single family Listed @ $5.95mm Sold @ $3.5mm 41.2% off original list Arrowhead single family Listed @ $5.9mm Sold @ $4.4mm 25.4% off original list Arrowhead single family Listed @ $7.15mm Sold @ $3.5mm 51.1% off original list Arrowhead single family Listed @ $5.995mm Sold @ $3.6mm 40% off original list Arrowhead single family Listed @ $2.865mm Sold @ $1.6 mm 44.2% off original list Bachelor Gulch single family Listed @ $16.85mm Sold @ $11.25mm 33.2% off original list Beaver Creek penthouse Listed @ $7.6mm Sold @ $4.45mm 41.5% off original list Mountain Star single family Listed @ $4.4mm Sold @ $2.88 mm 34.6% off original list Mountain Star single family Listed @ $21.95mm Sold @ $15.5mm 29.4% off original list Vail/Potato Patch duplex Listed @ $3.995mm Sold @ $2.8mm 29.9% off original list Vail/Grand Traverse single family Listed @ $4.425mm Sold @ $2.98mm 32.7% off original list Vail Village penthouse Listed @ $8.5mm Sold @ $5.45mm 35.9% off original list Vail Village penthouse Listed @ $9.35mm Sold @ $6.45mm 31% off original list Vail/West Vail single family Listed @ $3.195mm Sold @ $1.99mm 37.7% off original list Vail/West Vail single family Listed @ $2.985mm Sold @ $1.8mm 39.7% off original list

¹Prices reflect the difference from each property’s original list price to it’s final closing price.

Some notable sale-to-list figures from the summer/fall season

New Projects… what’s the word? Construction continues unabated in Vail and LionsHead, with The Four Seasons, Solaris, The Landmark, The Tower Residences and the Ritz-Carlton Residences all progressing nicely toward 2010 openings. Recent tours of these notable properties have been eye-opening and invigorating… the “landscape” truly is changing in Vail! While construction has continued at a fast pace, sales in the new projects have reflected those of the overall market. After an initial rush of “early adopter” buyers, we’ve entered into a quiet period on many of the pro-jects. Properties have been placed under contract at Solaris and The Landmark over the summer/fall season. And two new penthouses have sold at Manor Vail, albeit at discounts off the list price of 30% - 35%. This discounting of new product is the opening salvo in what will prove to be an interesting sales push over the next two years. Each of the new projects have an attractive inventory of residences still available, and as they begin to approach completion, the competition for buyers will intensify. Buyers will finally have the oppor-tunity to “touch and feel” the various properties first-hand, make side-by-side comparisons pertaining to finish levels, services and amenities, and thereafter choose the property which best fits their needs and dreams. And given the competition between the developments, buyers should be able to strike attractive deals with the devel-opers. Stay tuned… it’s bound to get interesting!!

Meanwhile, auctions fall flat...

After much hyperbole about “the new way to sell real estate” in the Vail Valley, most of the highly-touted auctions of the past summer fell far short of expectations. Several different “business models” were tested, ranging from absolute auctions… to minimum bid auctions… to “phantom” minimum bid auctions. Yet when all was said and done, it became clear that buyers who attend these events are intent on scoring a significant deal… and if they don’t perceive one will be available, they just won’t show up! Anything with a “minimum bid” attached proved to be a fruitless

effort. Aside from the simply curious, few of these auctions even had the auctioneer warm up… no one came to buy. However, auctions promoted as “absolute” did draw buyers, and in fact, resulted in a couple of sales. The emphasis here is on “a couple”. Most properties that were offered at auction are still awaiting their new owner. So while there is a place in the market for this business model, I don’t believe it will become the norm. And in the future, you can most likely expect them to be of the “absolute” variety.

Four Seasons, Vail

Sold at Auction, Vail

Thanks so much for your review of my fall update. I hope you have found it of value, and again, encourage your call or email if you would like to discuss! In the meantime, as the weather turns chilly and the snow begins to pile up on the slopes of Vail and Beaver Creek, know that I am…

Looking forward to seeing you this season!