If you would like further information, click here and feel free to give me a call to discuss further.
A small office building recently came on the market that I really like. This property, at approximately 10,000-sq. ft., is located one block from Ala Moana Shopping Center, has great parking, and will offer the buyer a great term of ownership. This property is listed by another firm, but I believe it’s a great buy and it will sell in the near future. I thought it would be worth sharing with you to keep up on good buys in the marketplace.
If you would like more information, click here and feel free to give me a call at 808-523-9708 to discuss further.
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.
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.
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.
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.
Earlier this week, while canvassing prospects for one of our projects, I spoke with a local company who invited me over to discuss their needs. While meeting with them, we spoke about long-term planning, and the five, ten, and twenty-year plans that their board has been working on. They believe that now is the time to start looking seriously for land here in Honolulu. While they currently have a facility that is adequate, their long-term needs are for much larger properties and buildings. They believe, and we concur, that the land prices for them will be severely discounted (up to 50%) from the peak of the market in 2005 and 2006.
Another client recently let us know they are back in the market to buy, because they believe the market is beginning to hit bottom. It’s not that important to find the exact bottom, but to jump back in near the bottom, because over time, the only way is up. This client bought nothing in 2005-2007, when they believed property prices were inflated with low returns and unrealistic expectations for rent growth. Over the past four real estate cycles, we have seen great wealth created by the long term players who jumped back in near the bottom of the cycle.
To be a great investor, all you have to do is judge the top 1/2 of the market cycle versus the bottom 1/2 of the Hawaii commercial real estate cycle.
Today, I attended an Economic Development Conference at Ko Olina Resort on Oahu. I was amazed to see that the Disney Hotel had not only broken ground, but is also already up to the 8th floor. This hotel, when completed in 2011, will have over 800 rooms, approximately half of them hotel rooms and the other half time-share rooms, available for sale.
This is the single largest construction project in Hawaii at this time. We are very lucky to have such a strong brand investing such large amounts of money on the island of Oahu during this down-cycle. It’s not only keeping a number of local construction workers employed but also it will employ hundreds of people in the West Oahu area starting in 2011.
The first evidence of foreign investors coming back to Hawaii is the recent sale of Pacific Guardian Tower at the corner of Kapiolani Boulevard and Keeaumoku Street, near the Ala Moana Shopping Center. This eighteen story high-rise office building was recently purchased by a Japanese investor (Maruito USA, Inc). With the yen hovering around 90 per dollar, the Japanese buying power goes a long way for U.S. real estate. Undoubtedly, the location and attraction of Ala Moana Shopping Center was a high priority for this investor.
In addition, since direct flights were announced to China we have had several inquiries from investors and real estate operating companies to purchase specific types of assets to service this new visitor coming to the islands.
With this first evidence of a new wave of investors, we will be looking east again, hopefully, for many of our investment real estate buyers.
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.