Due to an increase of new and revitalized construction of apartment buildings across the mainland, they are at risk of oversaturating the market with additional apartment units. Hawaii, on the other hand, does not currently have new construction of rental units. This translates to a continued pressure to increase rental rates. To read more about the trends, please download the articles below.
Ready or not, the city will auction off a total of 6 buildings on May 8th if property taxes are not paid. Read more here:
Star Advertiser: City readies auction of Waikiki building
POSTED: 01:30 a.m. HST, Apr 19, 2012
The city will seize and sell a derelict three-story Waikiki apartment building if its owners do not pay the taxes on the property that has sometimes been used by squatters and drug abusers in recent years.
George and Peggy Yamashita, who own the vacant building at 2240 Waikolu Way, owe the city $113,636 in back taxes, interest, penalties and costs.
The property, along with five others outside of Waikiki for which owners owe the city a combined $33,043, will be put up for sale at 9 a.m. May 8 at the Mission Memorial Auditorium, 550 S. King St.
The city schedules a sale for failure to pay real property taxes once every fiscal year, said Louise Kim McCoy, Mayor Peter Carlisle's spokeswoman. Taxes must be at least three years' delinquent for a property to go to auction, McCoy said.
City officials had posted a government seizure notice outside the Yamashitas' property, but McCoy disputed the use of the word "seize" and said the sign was hung in error and would be removed.
"The city does not seize properties," she said. "Instead, the city sells properties for failure to pay delinquent real property taxes."
Regardless of what the city calls the pending action, many members of the surrounding neighborhood say it is long overdue.
"Thank heavens the city is finally taking some action. The building has become a magnet for undesirables," said Bill Lofquist, whose Royal Kuhio condo overlooks the trash-riddled property, which the city has appraised at $1.58 million.
George Yamashita, whose taxes are more than three years in arrears, could not be reached for comment. His son Les, who was clearing debris from the building on Friday, would not comment. However, while he was there, Les Yamashita was approached by two potential buyers and by his business neighbor, Marc Litchfield, who complained about the squatters in Yamashita's building.
"I see (squatters) coming and going like cockroaches," said Litchfield, who is the contract agent for Makai Moped Rentals, across the alley from the Yamashita property. "It's bad for business. They don't want people to know they are staying there so they intimidate them."
The Star-Advertiser reported on the condition of the building on Aug. 22 as part of a series on homeless squatters in Waikiki. Residents and nearby businesses, including the Marine Surf Hotel, also have complained about the property to the city planning department, the police, fire and health departments.
Over the years, the police department has responded to multiple calls at the property, according to police spokeswoman Michelle Yu. The city Department of Planning and Permitting also has cited the owners, McCoy said.
Recent city actions at the building have included a notice of violation in March 2011 for overgrowth and litter constituting a fire, health and/or safety hazard, she said. Another notice of violation was issued on Nov. 7 for unsafe building/structures because inspectors found the property vacant and dilapidated and noticed that the doors on the second floor were open, McCoy said. The owners corrected the violations on Dec. 30, and settled their fines for $650 on March 12, she said.
"Regarding the delinquent real property taxes for this property, the real property tax collection section has been pursuing collection by phone and in person without success," McCoy said. "It is not common that properties in Waikiki are auctioned. To the best of our knowledge, there have never been any Waikiki properties auctioned."
Mark Bratton, vice president of the investment properties division for Colliers International, said if the property is auctioned it could interest as many as a dozen investors.
"It's a small, bite-sized piece so it lets a lot of investors into the game," Bratton said.
Recent amendments to the 1976 Waikiki Special District could make the property more attractive to buyers, he said. "It can be built-out bigger and fuller," Bratton said.
Owners of lots under 10,000 square feet were so hard hit by past Waikiki building rules that only three small lots were developed or redeveloped in the Waikiki Apartment Precinct in the past three decades. Without investment in the small lots, which make up the bulk of Waikiki, eyesores have grown.
"(2240 Waikolu Way) was probably a lovely jewel in Waikiki in the 1940s and 1950s, but everything grew up around it," said Stephany Sofos, a Waikiki-based retail analyst. "Now, it's in bad condition. People can get into it, so it has become an attractive nuisance."
If the property is auctioned, the total amount owed to the city is the upset price or starting bid, McCoy said. Last year, two owners paid their delinquencies in full before the sale and two were auctioned, she said.
"The city got the total amount it was owed of $31,135.47, with the surplus going to claimants entitled to the balance," McCoy said of the two auctioned properties.
Property owners also have a year to redeem their property after it has been sold at auction by reimbursing the purchaser for the sale price and all costs and expenses, including interest at the rate of 12 percent a year, she said.
Jeff Merz, an urban planner and member of the Waikiki Neighborhood Board, is among those who hope that the property goes to an investor, who will raze it or transform it into something better.
"It's not just an eyesore if it was harboring drugs and junkies and trash and vermin," Merz said. "It's been detrimental to nearby property values."
New investment would add to the $1 million enhancement already taking place at the nearby Royal Hawaiian Market Place, said Lofquist, who is also a member of the Waikiki Neighborhood Board.
The property could be redeveloped as a commercial mixed-use building with retail on the bottom and residential above, Bratton said. The building's limited parking is offset by its location in a good-walking neighborhood, he said.
A new owner also could pursue a historic designation, Merz said.
"It's got good bones," he said. "It is kind of a cool, art-deco structure."
Surrounding business owners might buy the building to expand their operations or add parking, Sofos said.
Any change would be an improvement, Litchfield said. "I'm sure all the business owners around here will be thrilled that something is finally going to happen to that building," he said.
The multi-family market in Honolulu is on a comfortable and steady rise. In 2011 alone, 20 multi-families were sold in Honolulu and 61 mufti-families were sold state-wide. This can be attributed by the increasing average rental rates of 12% in the last 3 years and a decreasing vacancy rate at a low 2.1% in 3Q of 2011. The vacancy rate in Honolulu, 2.1%, is strikingly low compared to the rest of the nation which comes in at 5.6%. With a continuously decreasing asking price, -11.8% state-wide from October 2011, we will see an increase in sales for 2012.
There are currently 26 apartment buildings for sale in Hawaii. These multi-family buildings range from two story walk ups to 6 story mid-rises. They range in price from $2- $40 million. Initial rates of return range from 4.0- 6.45%. The majority of available properties have an asking price with an initial cap rate of 5.5%. Three of them caught my eyes this month.
Investors will ask themselves a few questions before making an offer and spending their time and money on due diligence. The first question for investors is, “will there be enough of a premium over borrowing costs?” We all want to grow our money over time and most investors are happy to accumulate their profits slowly but surely each year. When the market takes a big leap, we can cash-in on those profits and move up to a new property or improve our lifestyle. The next question investors ask themselves is, “will the net income go up or go down over the next five years?” Investors always hope for rents to increase but over the last few years, the pressure has multiplied. The third question is, “what kind of repairs will be required?” Accurately estimating the cash flow and expense is key here. If we only had a crystal ball, it would be so much easier….. but if there was no risk there would be no reward.
I was making calls to sell a multi family building in Honolulu today and something rare happened…… Every person I called was still employed at the same company as four years ago. Now that is unique in the commercial real estate market.Usually when I am talking to office building or shopping center owners and even Hotel owners in Hawaii ,I spend 40 percent of my time updating who has left the company and who has the new responsibility for Hawaii commercial real estate. This confirms my suspicion that apartment complexes are the most stable asset class to come thru this recession.
Apartment buildings in Hawaii are typically 8 to 16 units. Many of the larger properties, that you would believe look like apartment buildings in Hawaii have been converted into condominiums. The smaller buildings are fairly accessible to investors with the majority of sales prices ranging from $1MM-$3MM. In addition, apartment buildings provide for hands-on management for the buyer and the ability to add sweat equity by upgrading units as they are turned over. Financing for apartments has been outstanding. Loan rate for apartment buildings in Honolulu have been the lowest of any investment class of real estate. Sometimes as low as 4%. During the first six months of 2011, 24 buildings were sold primarily on the island of Oahu.
A smart investment strategy is to buy a small building, clean it up, and plan to do a tax-deferred exchange every two or three years to a larger building. Don’t get emotional about specific properties and continuously upgrade the size of your buildings. In addition, when you get to a large enough size of operations you can provide services more efficiently.
Many families and investors in Hawaii have started in small apartment projects and have never sold a property. They like them so much they just keep buying more.
The apartment building market is very slowly picking up momentum. Halfway through the year, there were three properties on Oahu that sold. This is about double the pace of last year. These mixed-unit projects from 8-16 units have been selling in a range from $156,000/unit up to $194,000/unit, depending on location, current rents, and amenities.
Activity is being driven by investor confidence that rents have leveled off and will not be dropping in the future.
Currently, there are 24 apartment buildings available for sale on Oahu. Of these 24 properties, 14 of them have been on the market for over 1 year.