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Tag Archives: Invesment Properties

Hawaii Commercial Real Estate Appraisals – Speed of Information

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I recently attended a dinner and was privileged to hear a CEO of a major company in Hawaii speak about current trends. This is a company that is very conservative and has thousands of employees here in Hawaii.

One of the main points I took away from his speech was that it used to be imperative that we write 5-year and 10-year plans. While we may still do these today, his comment was in regards to the speed of information. Even with an organization as large as theirs, they have to be flexible. He said they were focused on continually making decisions on current information and relaying and understanding large amounts of data. He said he will sometimes make a wrong decision, but it’s better to continue to update their plan to support and serve their customer base than to sit back and evaluate every 12-60 months.

You may ask, what does this have to do with appraisals in commercial real estate? One of the biggest issues for our team this year has been current appraisals of properties. It is clear to us that prices have risen on many assets for 2010 versus 2009. We find that appraisers are often using data that is 6-9 months old to value properties. While we have a long line of buyers willing to pay where the market is and where the market seems to be going, every once in a while the appraisers step in and suggest a much lower value.

Recently, what we have found helpful is sharing our most current information with appraisers, including bidding characteristics, depth of the market, and the motivation of equity investors. In addition, we’ve noticed that the same market conditions are happening on the mainland. Because we have been sharing this data throughout our offices, we can share the transactional information, including cap rates and depth of the market, with local appraisers so they are able to get a global perspective on what investors are looking at today.

If you conduct an appraisal for your property in today’s market, be cautious, sit down with the appraiser at the beginning of the process to understand what the expectations are, and make decisions on the most current information.

Under the Radar of Hawaii Commercial Real Estate

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We are starting to notice more and more activity in the marketplace today here in Hawaii.  A number of those deals are happening offline, off market, and before the general public has a chance to see them.

In recent conversations with my clients, we have discovered a ground lease that says ‘Sold’ and also an office complex on the west side, which will be closing in the next few days.  Both of these are market rate caps or investment returns for the owners, and will provide substantially higher returns today than what was provided for buyers 24 months ago.

Hawaii Shopping Center sells for near 10% return

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Recently the Kele Center, located on the island of Maui in the city of Kahalui, sold.  The Shopping center is approximately 14,820-sq. ft. and sold at a price of $4,925,000.  Anchored by Denny’s Restaurants, Super Cuts, Rent-A-Center, and Edward Jones, this well-located community center was a great investment for the new owners.  The property is located just outside of the airport and down the road from Borders, Sports Authority, Lowe’s, and Costco.  The property sits on a land area of approximately one acre.  This Hawaii commercial investment will provide a nearly 10% return to the new owners of this property.

This is another example of a substantially higher rate of return (CAP Rate) than was achievable by investors just a short 24 months ago.  While it did take a large equity investment in today’s financing environment, the owners will be rewarded for making a move at this time in the marketplace.

I believe 2009 and 2010 will be looked at as low points in the Commercial Real Estate cycle for Hawaii.

Hawaii Retail Property sells for a very ambitious price

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Attached is an article regarding Safeway’s recent purchase of a new three acre site in the heart of Honolulu’s Commercial Real Estate Market post “Great Recession”.  This site formerly housed a Cadillac dealership, which has been closed for approximately the last year.  Safeway has an existing store very nearby that was not able to be enlarged, but does very high gross sales.  Safeway is paying a price very close to top of the market, even prices that have not been seen in two or three years.  At nearly $200 per square foot for the land, this will buoy land prices in the heart of Honolulu at least for the rest of this year.  Many of us had thought that land prices would start to drop, but this single transaction shows a very motivated buyer with a known history for strong sales reinvesting in the heart of Honolulu’s population.

http://www.kitv.com/money/22315133/detail.html

Freezer Food Distribution Facility Commands $19M

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KAPOLEI, HI-Locally based KDI Investments Inc. has acquired a 189,000-square-foot cold storage freezer food distribution building from Tower Plaza Associates LP for $19.2 million, according to Colliers International brokers who negotiated the sale. The property, at 91-315 Hanua St. in Kapolei on the island of Oahu, is the largest such facility in Hawaii, according to the Colliers brokers, who included senior vice president Fred Cordova in the Downtown L.A. office of Colliers along with senior vice president Mark Bratton and executive vice president Scott Mitchell at Colliers International in Hawaii.

The Colliers team represented the seller, which had acquired the property in 2006 from a related company of Foodland Super Market Ltd., Hawaii’s largest locally owned and operated grocery retailer. The property, which is located in Campbell Industrial Park, is occupied by a subsidiary of C&S Wholesale Grocers, the second-largest grocery wholesaler in the US.

The Colliers team notes that the decision to sell was based on the seller’s desire to free capital from some of its stabilized income properties. This move positions Tower Plaza Associates to take advantage of other investment opportunities, including those arising from the distressed assets. The buyer, a local family that did not have broker representation, acquired the high-yielding industrial complex to balance its portfolio of investments.

Cordova describes the 91-315 Hanua St. building as unique in terms of its size, location and use. “These features, combined with a solid tenant who has occupied the property for more than 22 years and has a significant amount of capital vested in it, provided a strong, long-term yield profile that is consistent with the buyer’s investment strategy,” Cordova remarked.

Bratton added that the buyer acquired the property at an “opportune time because of the high rates of return with an in-place credit tenant.” Considering the eventual upswing in the market cycle, “Investors will not see this type of return three to five years from now,” he said.

Apartment building sales in Hawaii have dropped dramatically

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Year to date, there has only been one apartment building sale in the State of Hawaii.  This is due to a number of factors, but mainly buyers’ fear of rents being on a downward trend.  Rent adjustments vary market by market and seem to be holding the strongest in the better buildings located in the core part of the city. One of our clients, who own a dozen buildings, told us they have had to reduce rents 20% to keep their properties at 96% occupancy levels.  Financing for many of these properties is still available and is one category of property where non-recourse financing is still available.

Currently on the market there are 45 apartment buildings for sale in Hawaii.  With the slowdown in the velocity of sales, rates of return are going up on these properties.  A quick look through the available properties today reveals that two of the 45 properties are offering a 10% initial return (both are located on the neighbor islands) with a high return for Oahu properties pegged at 8.4% at asking price.  The vast majority of the properties being offered are being offered at 6.5% or lower initial returns.

We expect to see a pick up in the last quarter of the year in sales due to pent up demand, available financing, and some stability in the market coupled with the need for year-end closing.

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