A Hawaii shopping center sells for 20 million dollars in profit after only 8 years! This article demonstrates that despite the recession that investment properties in Hawaii are still are great place to invest your money. Hawaii shopping centers though range in price prove their worth in long term value. Alexander & Baldwin Inc. has proven this with their real-estate strategy and with the huge profit margin experienced from the Mililani Shopping Center.
With the release of the Investment Market Report from Colliers Hawaii, both the Honolulu Star Bulletin and the Honolulu Advertiser have posted articles with a brief summary and overview of the Report.
A year of transition: They believe multifamily and retail sectors will recover this year, industrial by the beginning of the next year, office won’t see an improvement until 2011 and it could be as late as 2012 before problems in the hotel sector abate.
Hawaii Hotels: There are currently four Hawaii hotels for sale, and 11 that are distressed or in foreclosure, including the Ilikai, the former W Honolulu Diamond Head, Maui Prince, Fairmont Orchid, ResortQuest Kauai and the Hilton Kauai.
Commercial property sales: Sales have been consistently falling since the market’s peak in 2005, at $4.3 Billion. Last year, it slowed to almost a trickle at $627 million.
To view the full articles, please visit:
Honolulu Advertiser – Commercial property sales fall 20%
Honolulu Star Bulletin – Isle’s real estate is still in distress
If you would like to receive a copy of the various market reports as they become available, please send an email with your contact information here.
In January, I presented a 2009 summary and 2010 forecast presentation on the Hawaii Retail Market for CCIM. This video is the first of three parts of the presentation (the powerpoint slides used in the presentation are available for download here).
Outlined below are the main points of the video:
Retail sales: by watching the gross sales of retailers, you can predict if they’ll be able to pay rent, and how the property as a whole will perform. In 4th quarter 2009, sales began to go up again, and that could be the saving factor for rental rates and occupancy rates in Hawaii.
Retailers expanding and contracting: The biggest surprise is that Luxury retailers, along with best sellers, discount retailers and apparel and department stores, showed an increase in sales. Stores such as Neiman Marcus and Nordstrom had about a 4.5% increase in sales.
Shopping Center statistics: We’ve been seeing a drop in tenant sales that increases as you get further away from the core of Honolulu, and interestingly enough, Landlord revenues have gone up slightly. We’ve also been seeing Landlord expenses go down as owners buckle down to get through the year.
Vacancy Rates: Compared to the West Coast, Hawaii is in good shape, but when we look at the neighbor islands, you see rates jump to as high as 11.53%. It is definitely a Tenant’s market, as we’ve seen rental rates drop from $5 to $2-3 in a short period of time.
2010: Expect a slight increase in vacancy, we’re predicting 4.5%, as well as a 5% increase in sales. Not quite up to 2008 sales yet, but we’re getting close.
The next two videos will go over expanding and contracting retailers, retail investment properties in Hawaii, and proposed projects coming online in the next 10 years.
If you have any questions, or would like further information, please feel free to contact me, or leave a comment.
Today at the Hawaii Convention Center, I presented our thoughts on the retail marketplace to 750 clients, colleagues and managers of real estate properties. At the end of my presentation, I received several questions all similar to “Do you expect vacancies to continue to increase due to potential State furloughs and economic stagnation?” In preparing for the presentation we discovered that overall sales of consumer goods are back on a positive trend starting in Q4 of 2009. We believe that the consumer wants to spend money wherever possible.
How This Recession is Different
This great recession is not like others that we have experienced here in Hawaii. In past recessions, we have been hit with a decline in consumer sales and a surplus of available shopping center and retail properties. At the end of 2009, the vacancy rate for retail properties in Hawaii was at 3.47% which is probably the lowest vacancy rate of any major city in the United States. There are virtually no new developments under construction that will be delivered, ready for occupancy and leasing in the year 2010. A few projects are planned to start construction in the beginning of 2011/2012 with other projects being scrapped all together.
The Worst is Over
With no new threat of supply, we believe many retailers have hung on throughout the worst part of the down cycle by using their savings, credit lines where applicable, and hoping for a better tomorrow. With an up-tick in sales, and a projected increase in sales 2010 over 2009, many of these retailers will be back to profitability during 2010 and 2011. Due to the lack of supply of available space, we believe that we will actually miss any decline in rents in retail and shopping center properties here in the State of Hawaii.
A few weeks ago, I had an opportunity to play golf with the President of an International Hotel chain here in Hawaii. He reminded me that, although times are very tough at the moment in the hotel business, he is excited for the future.
Hotels in Hawaii
The majority of hotels in Hawaii were able to achieve major investments and upgrades over the past five years because of the good economic times. With their physical plant and furniture fixtures and equipment in such good condition, these hoteliers know that they will have quality product to offer for the next 10 years.
Hawaii Hotel Construction
In addition, this hotelier told me that he does not believe we will see a major hotel under construction in the state for the next 10 years, so that leaves their inventory of rooms and real estate a very valuable commodity.
He expects that in 2011 better hotels across the state will be able to start raising rates fairly dramatically because of the quality of their physical products.
While visiting clients in New York City, we noticed the beginning of a trend. Several of the large borrowers have been able to extend the due date deadlines for their Hawaii commercial real estate loans. We noted that the terms for these loans were exceptional, with very low interest rates. The lenders, rather than foreclose or take the Hawaii property back at this point, have agreed to extend the low interest rates in hopes that the situation gets better. Taking back a property in today’s environment is an expensive and time-consuming business. This allows these owners to continue being able to keep their mortgages current and retain the low interest rates that were achieved three and four years ago. In most cases, the properties are still throwing off positive cash flow to the borrowers.
Hawaii Commercial Real Estate Loans
We noted that these borrowers, being in New York City, and being actively involved in the financial markets, seemed to have better access to the different tranches or levels of lenders within each of the loans.
Many Hawaii borrowers have tried to communicate and work with the different tranches of lenders without much success. The larger borrowers in the money city centers seem to be having better results at negotiating first the riskiest pieces of the loans, and then second the main body or first position of the loan to achieve these extensions.
While I was in New York City for a conference, I was able to visit clients and customers to take their temperature on our Hawaii real estate market place. I did get somewhat of a consensus from the major players. The first half of 2009 was spent taking care of their problems. In only one case did that result in a property potentially going back to the lender. Many of the loans on the larger Hawaii properties were renegotiated and extended during the first half of 2009. It was clear that these entities are not going to throw good money after bad. However, with the extension of the loans, they seem to be willing to ride out the storm and plan to get back to similar values in 5-8 years.
Hawaii Commercial Real Estate
Another similar circumstance amongst these owners is that they are ready to dive back in and invest. Several have funds left over from pools that they raised publicly in 2006 and 2007, which have not yet been spent. Others have new money that they have raised targeting “distressed assets”. They are studying the problem assets in Hawaii, primarily hotels, and already deciding amongst themselves which ones are they interested in and which ones they won’t waste their time on. Wall Street still has a strong appetite for Hawaii real estate.
By Rick Daysog
Advertiser Staff Writer
Carriers will have capacity to bring nearly 500,000 more passengers next year
At a time when many U.S. airlines are cutting back capacity to Mainland destinations, carriers plan to increase flights to Hawai’i.
During the past several months, half a dozen airlines serving Hawai’i have announced that they are adding about 60 regularly scheduled flights a week to the Islands, some from markets as far away as Charlotte, N.C., and Detroit.
According to a recent study by the Hawai’i Visitors and Convention Bureau, the nation’s airline industry plans to add more than 497,000 more passenger seats to Hawai’i in 2010. The additional capacity represents about a month’s worth of airline capacity, said HVCB CEO John Monahan.
The increase is good news for the local travel industry, which saw a 15 percent decline in capacity after last year’s twin shutdowns of Aloha Airlines and ATA Airlines, the global financial crisis and soaring fuel prices.
“The amount of new service started this year or that has been announced for next year is huge,” said state Tourism Liaison Marsha Wienert.
“That tells you that the airlines have confidence in Hawai’i as a destination.”
Hawaiian Airlines is adding the most capacity with the delivery of its new, long-range Airbus A330-200 aircraft in April.
The state’s largest airline plans to add 21 weekly flights, including daily flights to Maui from Oakland, Calif. and San Diego as well as a daily Los Angeles-to-Honolulu flight.
The new Airbus jets are part of the local carrier’s plan to spend as much as $4.4 billion over 15 years to acquire up to 24 new long-range aircraft.
Over the longer term, Hawaiian’s new Airbus jets gives it the capability to fly direct flights out of New York and other Atlantic coast cities, making it easier to market Hawai’i tourism to new East Coast markets, said David Uchiyama, marketing director for the Hawai’i Tourism Authority.
U.S. Airways has already started up its own East Coast connection.
The Phoenix-based airline last week launched daily nonstop service from Charlotte, N.C., augmenting the company’s existing Hawai’i service from its Phoenix hub.
Meanwhile, Delta Air Lines has said it will resume direct flights to Honolulu from Detroit starting in June.
The Atlanta-based carrier, which stopped flying directly from Detroit in 2004, will operate three flights a week from the Motor City, which will make it easier for travelers from the Eastern seaboard to travel to the Isles.
To be sure, most of the growth will come from West Coast markets, especially those once served by Aloha and ATA.
Alaska Airlines, which only began daily flights to Hawai’i two years ago, said it plans to add 14 flights a week to the Islands from California, making Hawai’i one of the airline’s largest markets. Last month, the carrier began flying direct flights to Kona from a former Aloha and ATA stronghold, Oakland, Calif.
As a result of the expansion, about 11 percent of the carrier’s capacity will serve the Hawai’i market.
Continental Airlines plans to beef up service from other former Aloha and ATA routes. Starting in March, the airline said it plans to fly four times a week to Maui from Orange County, Calif.
It also plans to increase the frequency of its Orange County to Honolulu flights from four days a week to seven days a week.
David Carey, CEO of Outrigger Enterprises Inc., estimates that the overall airline capacity is still off about 5.5 percent from its pre-Aloha and ATA days. But he said that’s much better than other Mainland markets where airlines have cut back as much as 20 to 30 percent.
“We’re still still down several percent but anything showing positive growth going forward is good news,” he said.
The increased passenger lift represents a sharp reversal from early 2008 when Hawai’i’s travel industry was struggling to persuade Mainland carriers to help fill the void created by the shutdowns of Aloha and ATA.
Many of the carriers were reluctant to increase capacity due to soaring fuel prices and the global economic meltdown.
What’s more, some eastbound carriers such as Korean Air Lines had planned to expand their service to Hawai’i but later reconsidered after bookings tailed off as a result of fears of the H1N1 flu.
“It was one thing after another. First you get hit with fallout from the airlines, then it was the jump in oil prices, then you get hit with the financial crisis and then the H1N1 fears,” Uchiyama said.
“Talk about getting beaten up.”
My top 3 picks for Commercial property in Hawaii:
The video includes more detail and a clip of the third property listed below.
1. Boutique Hotel on a large piece of Fee Simple land in a triple A location. There’s an opportunity to re-brand the hotel and the owner is looking to restructure capital stack, both equity and debt.
2. Small neighborhood shopping center on Kauai. Located near the harbor, the property is just over 90% occupied, with reasonable rents. What caught our eye was the Owner’s contract to buy the fee simple interest under the property, making it a great long term investment.
3. Warehouse in Campbell industrial park, currently occupied by Oceanic companies. Located on just over 17,000 SF of land, this 9,200 SF property includes parking, a yard area, and interior space for both warehouse and office. Currently, the property offers a 9.5% return on income from the existing tenant for 2000.
A local family has purchased a 189,000-square-foot cold/freezer food distribution building in West Oahu’s Campbell Industrial Park.
The building at 91-315 Hanua St., which is occupied by a single tenant, C&S Wholesale Grocers, was purchased by KDI Investments Inc. for $19 million, according to Colliers Monroe Friedlander, which handled the sale along with the Los Angeles office of Colliers International. KDI Investments is owned by siblings Malcom Tom, Kenton Tom and Joanna Leong, who also own the Wailana Coffee House in Waikiki.
The seller was Tower Plaza Associates LP, which bought the building in 2006 for $18.75 million from Pacific Warehouse Inc., a related company of Foodland Super Market Ltd.
“The buyer stepped up and purchased the property at this opportune time because of the high rates of return with an in-place credit tenant,” said Mark Bratton, the senior vice president at Colliers Monroe Friedlander who represented the seller along with Executive Vice President Scott Mitchell. “Considering the eventual upswing in the market cycle, investors will not see this type of return three to five years from now. This is impeccable timing.”
RSS Feed