Waikiki condo-hotel put on hold for second time

A 32-story condominium-hotel planned for the site of the King’s Village shopping complex in Waikiki is on hold, and developers haven’t announced a new start date.

Construction on 133 Kaiulani was supposed to have started this year, adding a new 248-unit tower to Waikiki’s tight hotel market. Developers, including the Kobayashi Group, the MacNaughton Group and Black Sand Capital, previously scaled down the project, which was originally presented in 2014 as a two-tower, 256-unit build.

“We have received all of our entitlements and have made substantial progress in our designs to redevelop the King’s Village site. However, we continue to work toward reducing the high cost of construction and are evaluating the appropriate time to go to market,” said an emailed statement from Black Sand Capital Kings Village Shopping Center LLC. “We remain excited about this project and will proceed as soon as conditions allow.”

Developers of the project, estimated at more than $200 million, already have obtained their planned development-resort permit from the Honolulu City Council, allowing them to build a 350-foot tower that exceeds Waikiki’s height requirements in the city’s land use ordinance.

But they haven’t begun razing the Prince Edward Apartments, the Hale Waikiki or the King’s Village shopping center, which still has operating tenants.

Developers recently notified the Waikiki Neighborhood Board and the Waikiki Improvement Association that the project is on hold for the second time — they also pushed the project start back in 2016. That same year, they announced that they would scrap plans to build the luxury Kakaako condominium Vida at 888 Ala Moana Blvd. In that case they cited a slowdown in luxury sales.

“There are a lot of unknowns right now. With interest rates going up along with construction costs, it may be time to re-evaluate,” said real estate analyst Stephany Sofos. “There’s a lot of new tourism and luxury inventory coming, and they may want to see how that is absorbed. They also are involved in the Park Lane Ala Moana luxury condominium development. That’s a $500 million project, so they may want to take a breather until they get everything there closed. Construction is tricky; if you miss your market, it could bankrupt you.”

Rising interest rates coupled with a construction boom in Hawaii and other markets across the U.S. have led to job delays and cancellations for other developers, who also are grappling with higher construction costs and shortages of skilled laborers and materials. Last year Outrigger Enterprises Group announced a major modification for its Outrigger Reef redevelopment, saying it planned to cancel a new 350-foot tower amid soaring construction costs. The state Department of Education also blamed the boom for a delay in adding air conditioning to public school classrooms.

The prices of many construction inputs have risen recently, in some cases sharply, after years of declines, according to data from the Associated General Contractors of America (AGC). Average hourly earnings in construction, mining and logging in Hawaii jumped 5 percent from January 2016 to January 2017, as compared with 2.8 percent for the entire U.S. private sector and 3.1 percent for the U.S. construction industry, said Kenneth D. Simonson, AGC chief economist.

“That suggests contractors in Hawaii are having to offer much more to attract and retain the workers they need. To the extent they are able to, they will pass those costs along,” Simonson said.

High-rises are the most vulnerable to fluctuations because all construction costs are paid upfront, said Christine Camp, Avalon Development Co. president and CEO.

“In a green field build, you can do a project in phases to match market demand. In a high-rise you have to build it all and have everything working before you can sell,” she said.

Camp predicts a lot of the high-rises getting announced now will be subject to the same issues.

“Any hiccups with conditions like construction costs, fees, permitting and interest rates, and investors may want to put them on hold,” she said.

The good news for developers is that despite the boom of the last few years, there is enough capacity to do the work, and there appears to be some softening in man-hours, said Johnny Y. Higa, executive vice president of the General Contractors Association of Hawaii, which represents over 500 corporate members.

In late 2015 and early 2016, AGC reported that Hawaii was one of the top states for percentage growth in construction employment, topping out in February 2016 with a 17 percent increase over February 2015. But further data show that the growth rate slowed steadily throughout the year, bringing employment numbers from November to January essentially level with one year earlier.

”The last few years, it’s been booming. You could see the power cranes all the way downtown, but a lot of large projects were completed last year,” Higa said. “We are projecting a slight decrease in volume.”