The attached article details additional flights both from the United States and from Asian countries, showing a strong pickup for the economy in Hawaii in the near future.

Star Advertiser – Airlines taking wing for isles again

The simple answer to this question is yes.

In our marketplace, vacancy rates are generally lower than most parts of the United States Mainland.  In recent offerings, we have seen stronger interest, more bidders, more cash offers, and lower rates of returns for the buyers.

There does seem to be a flight to quality and certainly investors today are demanding immediate cash flow as opposed to waiting several years for monthly cash flows.

With the stock market’s fluctuations our clients are more than happy to receive returns in the 6% to 8% per year range on commercial real estate in Hawaii.

One of our clients recently came in to discuss his property.  We started talking about his plans for leasing, marketing, cost reduction, etc in 2010.  As we went through the budget and looked at items where we could reduce costs and add value, we noticed that his mortgage is due at the end of 2010.  This is a property that was purchased three years ago at the height of the credit market.  We immediately switched the discussion to what options are available for this loan even though it is due in over one year.  We spoke about the following:

1.  Refinance the property with a local lender.

2.  Refinance the property with a private individual.

3.  Refinance the property by recapitalizing the ownership.

4.  Sell the property and pay off the loan.

The owner thought, as with his previous loans, he would be able to just renegotiate with the existing lender.  The existing lender on this property is a number of bond holders that own this loan through an investment in a commercial mortgage-backed securities pool.  However, the collection of owners had no interest in refinancing this property.  Their interest was in collecting the monies due on the current monthly payments so they would each be able to redeploy their capital into different places as they required at the end of 2010.  This loan that was originally made by a group of Wall Street bond holders, now needs to be replaced and the owner, luckily, has time to shop around to a few avenues that are available to him to refinance.  Another real possibility is he will be offered a new, smaller loan which means he will need to invest additional equity into this property. We have agreed to assist him in working with local lenders and national life insurance companies analyze the possibilities.  He has agreed that if an acceptable source of refinance is not found in the next three months, he will have to seriously look at putting the property up for sale in today’s marketplace or taking in a partner to recapitalize the property.  This strategy and timeline keeps the owner in control and not at the mercy of the lender.

Another client of ours, who was in for a similar annual planning discussion, advised that their loan is not due for eight years and as we were going through the process of planning, we looked at their current value of the property and noted that the existing loan could not be replaced under current underwriting guidelines by a local bank or national finance or insurance company.  The next step will be to present the following options to the partnership for consideration:

1.  Continue on the path they are on, hoping that underwriting standards change and they will be able to refinance the entire amount.

2.  Consider paying down the loan with the available cash from the disbursements to partners.

3.  Curtail disbursements to partners and put the money into savings to provide for the unknowns that may be coming with this long-term refinance.

We believe the Partnership will decide on a conservative approach of putting the money into savings and looking at the marketplace again or get financing in their annual review of the property next year.

As I was reviewing the investment property sales in Hawaii for the ending of third quarter 2009, I noticed that, year to date, three golf courses have sold.  The common thread seems to be that the properties that have sold are somewhat distressed, with sellers having some motivation or reportedly having other debts to pay.

One new Golf Course has just come on the market for sale. The only other “Resort” property that has sold so far this year is a 12-unit hotel in Waikiki.  There will be many more resort properties coming to market in the next year.

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