Hawaii hotel sales reached a record $1.97 billion last year, and the blistering pace has continued into 2014, with another half-billion in estimated transactions in the first two months alone.
"There’s still an unbelievable amount of activity going on," said Joseph Toy, president of Hospitality Advisors, a consulting firm. He added that the momentum hasn’t let up, even though 2013’s hotel transaction results surpassed the 2004 transaction record of $1.67 billion by $310 million.
"We’ve also seen a shift in players with a lot of new investment coming from private equity funds and a lot of new brands coming into Hawaii," Toy said. "Ultimately, they’ll refresh the properties that they’ve purchased and the destination."
Among notable transactions reported this year are the Aston Waikiki Beach Hotel, which closed March 3 for $183 million to Inland American Lodging Group, which makes its debut in Hawaii. The Ritz-Carlton Kapalua Resort also sold Feb. 27 to a partnership between Woodridge Capital Partners LLC and Colony Capital LLC and its affiliates, which include Colony Financial. While the Ritz-Carlton Kapalua’s sales price has not been disclosed, industry analysts speculate that it will come in around $200 million. Rockbridge Capital also made its debut into the Hawaii hotel market with a January purchase of the Aqua Waikiki Wave for $48 million.
Buyers are coming mostly from the New York financial market but also from Hawaii, Canada, Japan, China, Singapore and Australia, said Mark Bratton, a Colliers International vice president. Some represent sophisticated hotel firms, while others favor short-term investment since their primary businesses are outside of hotels, Bratton said.
Industry analysts say relatively low interest rates combined with low inventory of hotels continues to fuel investor desires. However, analysts also say that Hawaii’s strong hotel performance, diverse visitor base and growing airline access have played a significant role in attracting investors. Hospitality Advisors has reported Hawaii’s hotel industry revenues (including rooms, food and beverage, retail, parking and all other sources) reached $5.3 billion in 2013, the first year that industry earnings rose above $5 billion.
"Waikiki and Oahu/Honolulu economy is what everyone has been chasing and believes will continue to increase at a healthy pace," Bratton said.
Hospitality Advisors data back up Bratton’s assessment. Oahu hotel occupancy stood at 85.2 percent in 2013, and Hawaii hotels set a record for room rates.
With all the frenetic activity, the pace of which has not been seen since the Japanese bubble economy, investors have started to cycle through available properties and have started planning new builds in places like Waikiki or in areas where there already are entitled lands like Turtle Bay, Ko Olina, Princeville Resort and Makena Resort or in community locations like Laie, Kapolei or Koa Ridge, the master-planned community in Central Oahu.
"We’ve reached the tipping point, at least on Oahu, for new building," Toy said.
Casey Federman, managing director for PACREP LLC, the company that was affiliated with development of Trump Waikiki, recently told Waikiki residents that market fundamentals support their planned development of two additional mixed-use hotel towers, which they plan to build at 2121 and 2139 Kuhio Ave.
"The city block seemed underdeveloped," Federman said. "We looked at what Outrigger did for the Waikiki Beach Walk. They developed an area for the better. We think it’s fantastic."
While the development has met with some resistance in Waikiki, proponents have said that it would create construction, retail, hospitality and service jobs and add additional room capacity to a tight hotel market. Jason Grosfeld, PACREP’s managing partner, said earlier that the Kuhio corridor is ripe with redevelopment opportunities.
"It’s very expensive to build in Hawaii, and it takes time. But, we are long-term believers in Waikiki, so we were willing to take the risk when others were not," Grosfeld said. "Waikiki is one of the most popular vacation destinations, but it hasn’t had any major development in this area for at least 40 years. Someone had to take that first step. The development of the first tower helped us get comfortable about doing the second one. I hope that continues for properties on the mauka side of Kuhio where people are willing to look across the street and say that they’ll be comfortable in investing."
While Oahu’s tourism growth is expected to moderate somewhat this year, Bratton said the increases still will look better to investors than most markets. Buyers also are watching hotel performance on other islands, and Bratton said they are likely to jump into these markets once spillover from Oahu sufficiently boosts neighbor island occupancies and room rates.
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