Ilikai units in demand as lender aims to trim its holdings

A mortgage lender that owns four floors of hotel rooms at the top of the Ilikai condominium tower in Waikiki has begun to sell off its units acquired five years ago through foreclosure.

New York-based iStar Financial Inc. recently listed an initial 59 renovated and furnished units for sale at prices from $399,000 to more than $1 million in the roughly 1,000-unit tower fronting the Ala Wai Boat Harbor.

So far, the sale effort through broker Prudential Locations LLC has produced strong results. IStar said it received 123 purchase offers on the 59 units, including many above asking prices.

"The demand was more than we expected," said Ben Dookchitra, an iStar vice president. "We’ve been positively surprised."

The company expects to gradually list and sell another 117 units followed by retail, restaurant and other commercial space including offices and meeting rooms on the second floor to be converted into another roughly 40 vacation condos for sale.

The move is part of an effort by the lender to turn around financial losses in recent years, and represents the beginning of an anticipated liquidation of what became a troubled real estate investment that generated much turmoil at the historic Ilikai that has stood near one edge of Waikiki for 50 years.

Local real estate agents say the location and the history of the Ilikai — it garnered something of a pop-culture icon status from being featured in the opening scenes of the original "Hawaii Five-0" television series — make it an attractive residence or investment.

"I think the grand old lady is coming back," said Kathleen Kagawa, president of local real estate firm Hawaii 5-0 Properties.

Kagawa said the Ilikai went through significant duress in recent years but is rebounding from the failed plan to upscale the property.

"I think it’s a great property," she said. "It’s fee-simple on the water. It seems to have come back really strong."

Since the beginning of last year, there have been about 100 Ilikai units sold for prices ranging from $235,000 to $2.1 million, according to sale records.

About 90 percent of the Ilikai’s roughly 1,000 units are rented out by owners as vacation rentals, according to Dookchitra. IStar’s units are managed by an affiliate of Aqua Hotels and Resorts as the Aqua Ilikai Hotel & Suites.

The Ilikai was built in 1964 by local businessman Chinn Ho as Hawaii’s first condominium, and historically has been part condo and part hotel.

IStar, a commercial real estate finance and investment company, got involved in the Ilikai through a loan it made to local developer Brian Anderson of Anekona Development Group to buy much of the Ilikai in 2006.

Anderson bought 343 hotel units and much of the commercial space in the main Y-shaped tower plus 360 hotel rooms in what used to be an integrated building called the Yacht Harbor Tower for $218 million.

The developer split off the Yacht Harbor Tower through an $80 million sale to San Diego-based eRealty Cos. in a deal that led to that building being renovated and reopened as an upscale hotel now called the Modern Ho­nolulu.

In the main Ilikai tower, Anderson planned to renovate and sell his 343 rooms to individual owners while upgrading common areas that would help boost hotel rental rates.

Anderson’s plan, however, didn’t go over well with many owners in the building, in part because of moves the developer made that included forcing out longtime businesses, cutting off access to the main pool and restricting parking and storage.

Upset Ilikai residents and those who didn’t trust Anderson voted down his plan to spend $60 million renovating the building into an upscale property.

Anderson managed to sell 140 units but defaulted on mortgage payments in 2008 as downturns spread throughout Hawaii’s condo-hotel and tourism markets. A mortgage industry meltdown and a lawsuit filed by some investors in Anderson’s project also contributed to its demise.

IStar claimed in a 2008 foreclosure lawsuit that Anderson owed the company about $73 million.

In 2009, the lender repossessed Anderson’s pieces of the Ilikai, which at the time totaled 203 condo units and 16 commercial units including the front desk, restaurant space, retail space, office space, parking and some small meeting rooms.

IStar had been expected to eventually sell the Ilikai assets, and observers say Hawaii’s real estate and tourism markets breaking records make this an opportune time to sell.

IStar has been under pressure to reverse its own financial losses, which have totaled about $1 billion over the past five years in large part due to nonperforming loans.

Over the past couple of years, iStar sold 27 unrenovated condo units spread among lower floors. The company also has found new tenants for its commercial space, including Cinnamon’s Restaurant, a convenience store and a hair salon.

The remaining 176 units — 152 studios with 500 square feet of living space and 24 two-bedroom units with 1,000 square feet of space on floors 22 through 25 of the 26-story tower — are being renovated with new kitchens, bathrooms and furnishings.

IStar’s Ilikai renovation and sale effort is a collaboration with local development firm U.S. Pacific Development and affiliate Form Partners.

Dookchitra said iStar is thinking about selling the commercial space next year. Work also is projected to start later this year converting office and meeting space on the second floor into about 40 more condos for sale, he added.