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COVID-19 restrictions imperil Hawaii vacation rentals

  • Video by Craig T. Kojima / ckojima@staradvertiser.com

    Hawaii's vacation rental industry has taken a financial hit during the state's tourism lockdowns.

  • CRAIG T. KOJIMA / CKOJIMA@STARADVERTISER.COM
                                Munro Murdock, pictured at the Beach Villas at Ko Olina, specializes in managing vacation rental properties. His company has been negatively affected by the COVID-19 pandemic.

    CRAIG T. KOJIMA / CKOJIMA@STARADVERTISER.COM

    Munro Murdock, pictured at the Beach Villas at Ko Olina, specializes in managing vacation rental properties. His company has been negatively affected by the COVID-19 pandemic.

Munro Murdock, founder of Love Hawaii Realty and Love Hawaii Villas, was living the dream up until a few months ago, helping owner clients generate millions of dollars in vacation rental revenue.

The company, which has dozens of vacation rental properties under management, last year serviced about 1,000 groups going to Hawaii and 5,000 guests. The start of this year looked good too.

Then, COVID-19 brought a surge of cancellations amid new coronavirus fears and government lockdowns.

“In about one week’s time, we had 100 cancellations that equated to hundreds of thousands of lost revenue,” Murdock said. “We had to lay off or furlough nearly every single person that works for us. Normally, in a year we have five to 10 cancellations — we’re (over 150).”

The Paycheck Protection Program helped Murdock bring employees back to work, but it only runs through June 27. If tourism lockdowns continue past July 1, he worries his business, employees and clients will face more disruptions.

On May 14, Honolulu Mayor Kirk Caldwell extended his stay-at-home emergency order through June 30. The order considers short-term rentals of under 30 days nonessential businesses, which means they can’t legally operate until it gets lifted. Gov. David Ige also said that he plans to extend a 14-day mandatory self-quarantine for all travel into the state from May 31 until the end of June.

“If that happens, we’re likely laying off and furloughing everyone again,” Murdock said.

Scenarios like this have grown all too common across Hawaii’s entire vacation rental industry.

Not everyone’s unhappy about the hit. Opponents have long blamed vacation rentals for everything from overtourism to traffic to inflating real estate prices to cutting into rental housing supply to changing the fabric of neighborhoods.

On the other hand, proponents argue that they help diversify tourism and provide a way for some locals to cash in on Hawaii’s main economic driver.

Regardless, there’s no denying that the trickle-down ramifications of upending this industry are huge.

Erik Kloninger of Kloninger & Sims Consulting said, “Everyone from owners and hosts to property managers, employees, contractors and the businesses that they support, especially the mom and pops, are suffering.”

Government regulations combined with softening travel demand ultimately might cause Hawaii’s vacation rental industry to shrink. Many owners don’t have the deep pockets of hotel corporations or access to as many government bailouts.

Some vacation rental properties already are in forbearance, and some will move into short sales and foreclosures, which will impact Hawaii real estate. Distressed properties could include businesses or homes where the owner rents out a portion of it to subsidize high living costs. Some owner-occupied homes also might have been leveraged to buy investment properties.

Supply might be disrupted as some owners, who are worried about lengthy lockdowns, choose to convert their units into long-term rentals, Kloninger said.

Chicago resident Doug Rascher, who bought two units in 2008 and 2010 at the Beach Villas at Ko Olina, said he hasn’t received any emergency grants, but is planning to ride out the downturn.

That said, Rascher knows there will be other owners who can’t.

“We’ve still got a mortgage and $2,500 a month association fees to pay,” he said. “I hope that we will be able to get renters back so we can start generating income soon. I don’t expect that will happen until they lift the quarantine.”

Further dampening of vacation rentals could have long-term ramifications for Hawaii’s tourism economy, Kloninger said. Vacation rentals make up about a third of the lodging inventory statewide, he added.

“Without the vacation rentals, Hawaii wouldn’t have gotten to 10.4 million visitors,” Kloninger said. “Oahu hotels were over 80% occupied, and while there was some capacity at neighbor island hotels, most of the visitors that came to stay in a vacation rental weren’t looking to stay at hotels. They wanted a completely different experience.”

Intrepid visitors were once drawn to vacation rentals for the chance to experience a more authentic Hawaii experience that allowed them to mix more with locals. Ironically, the appeal for some travelers to book vacation rentals in a COVID-19 world is because they offer more opportunity for social distancing.

Bill McKenna, an Ohio visitor slated to stay in an Oahu vacation rental in July, said he and his family are considering canceling the trip given that they have to complete a two-week quarantine before starting their vacation. Another option, McKenna said, would be extending the trip to five weeks. Then, they’d have three weeks to enjoy Oahu on the back-end of the quarantine provided enough of the island had reopened.

Health concerns won’t play a big factor in McKenna’s decision, given that he considers Hawaii safe, especially if he’s in a vacation rental.

“You guys have got to be the safest state in the union. We’ve got more COVID-19 cases in Ohio,” McKenna said. “The flight was a concern a few weeks ago, but not so much anymore. I’ve got family in airlines and they are really going overboard on cleaning and safety.”

McKenna said he feels safer in a vacation rental than a hotel, where they are “rolling the room” more frequently and there’s more visitor traffic.

It’s precisely for this reason that travel experts say if they’re allowed to operate, vacation rentals will recover faster than hotels.

Skift, the travel community’s trade publication, tracked traveler sentiment during COVID-19, and found that travelers are going to prefer the vacation rental option more coming out of this crisis.

“Coming out of COVID-19, the city, county, and state will need to act quickly to revive tourism. Vacation rentals will not only be travelers’ preferred option, but an important contributor in terms of tax revenue,” Philip Minardi, Expedia Group director of policy communications, said in a statement.

But that won’t happen if government doesn’t allow consumers that choice.

Andreea Grigore, vice president of rentals at Elite Pacific Properties, said the company’s vacation rental division has seen a 70% drop in forward bookings compared to last year.

“Before this hit, we were having our best January or February. We were up almost 100%,” Grigore said.

But occupancy fell to 5% in May, and with so much uncertainty business remains sluggish into fall, she said. It doesn’t help that the Ironman World Championship, Kona has been rescheduled to Feb. 6, Grigore added.

“We are focusing on the things that we can improve,” she said. “We want to make sure that the things we are doing now — marketing, investing in new technology and cleaning protocols and training — will put us in a better place when we reopen to guests.”

Murdock said the employees that he’s brought back through PPP funds are deep cleaning all units. He’s also invested in electrostatic sprayers, which apply an electric charge to a cleaning liquid to get it to fully cover a surface.

Grigore said the company has stepped up it’s inspection protocols, which had a 200-item check list even before COVID-19. They’re pushing smart key installation and they are working to ensure that there are at least 24 hours between guest check-ins. They’re still investing in the future.

“I think people will come back once we have some certainty about when measures will be lifted,” Grigore said. “Hawaii is so special. It’s not a question of if we’ll rebound, it’s a question of when.”

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