Big Sky Resort Funds 389 Workforce Homes via $53M Muni Offering

Big Sky, Montana's luxury ski resort is addressing a growing affordable housing crisis by tapping into the municipal bond market. A $53 million bond offering this week will fund a project to create 389 workforce homes and apartments in the Cold Smoke neighborhood. The funds will be sourced from a 1% resort tax, which has grown significantly in recent years due to increased remote work and second-home purchases according to Bloomberg.

The area, home to the Yellowstone Club and Big Sky Resort, faces a severe housing shortage, with 80% of resident households earning incomes that require below-market housing pricing. Essential workers, including firefighters and physicians, are struggling to find affordable places to live. The district's board vice chair, John Zirkle, emphasized that the project targets the "missing middle" of the housing market according to Bloomberg.

Grace Young, a board member for the Big Sky Resort Area District, highlighted the challenge of attracting a local workforce, noting that 83% of the area's workforce commutes between 60 and 90 minutes to work. The district has stressed that the resort tax, not residents, will fund the initiative, reducing the financial burden on the local population according to Bloomberg.

Why the Standoff Happened

Efforts to address workforce housing in wealthy resort areas have faced resistance elsewhere. For instance, in Telluride, Colorado, voters rejected a similar initiative in November. The challenge lies in balancing the needs of essential workers with the reluctance of residents to shoulder additional taxes or debt according to Bloomberg.

Big Sky's resort tax collections have surged over the years. From a modest base in the 1990s, collections have increased by over 400% since fiscal 2016. This growth has been driven by the pandemic, which led to a rise in remote work and second-home ownership, boosting tax revenues significantly according to Bloomberg.

The recent success of the bond offering is also attributed to a new state law that allows workforce housing to be classified as infrastructure, making it eligible for funding from the 1% resort tax. This legal shift has opened new avenues for financing affordable housing in luxury resort communities according to Bloomberg.

Risks to the Outlook

Despite the progress, housing experts caution that the Cold Smoke project, while significant, does not fully resolve the affordable housing crisis in Big Sky. Zirkle acknowledged that the 389 units represent a "big step," but the overall shortage remains acute. The district is optimistic but aware that more work lies ahead according to Bloomberg.

The bond offering, rated investment-grade and insured by Assured Guaranty, carries a yield of 4.58% over 30 years. This is about 48 basis points higher than AAA-rated debt, reflecting the market's perception of the project's risk and return profile according to Bloomberg.

The Cold Smoke neighborhood is scheduled to begin offering apartments for rent in 2028, with homes available for purchase in 2029. These units will be restricted to residents who work in Big Sky and will be income-qualified, ensuring that the housing meets the needs of the local workforce according to Bloomberg.

What This Means for Investors

The Big Sky Resort Area District's bond offering highlights a broader trend in the U.S. housing market. As high-income areas struggle to maintain a stable workforce, innovative financing methods are being explored. Municipal bonds, supported by specialized taxes, are emerging as a viable solution in luxury resort communities according to Bloomberg.

This trend is not isolated to Big Sky. In New York, for example, the state plans to issue $62.1 million in bonds for multi-family rental housing projects, while New York City is set to sell $218.3 million in bonds to develop affordable housing. These initiatives reflect a coordinated national effort to address housing shortages through targeted financing according to Morningstar.

Investors are watching closely as these projects unfold. The success or failure of the Cold Smoke initiative in Big Sky could influence future bond offerings and housing strategies in other resort areas. The market is particularly interested in how these bonds perform and whether they can be replicated in other high-cost, tourism-driven regions according to Bloomberg.