HONOLULU -- The year 1998 will be remembered as the peak year in
sales of Hawaii hotels.
The state saw the long-awaited effects of the 1980s binge buying
by Japanese -- often at inflated prices -- and new Japanese-owned
resort development. The bubble burst long ago.
However, sales accelerated only after Japan's government finally
became serious about the banks getting rid of bad loans and
The 1998 transactions will result in massive amounts of hotel
renovations, beginning this year.
For some older hotels, the purchases will bring badly needed
Purchased during the peak buying years of 1985 to 1990, their
new Japanese owners did not have the funds for intended
"Transactions have slowed because of a lack of liquidity,"
according to Joseph Toy, director, hospitality consulting for
Until last summer, his office was getting 20 calls a week from
Now the number is down to "a trickle," he said, adding that
buyers are bypassing Hawaii for Asia, where hotels are
By 1991, the buying spree had resulted in Japanese owning more
than 60% of Hawaii's hotel rooms.
That percentage began to change in 1993 when mainland investors
started buying financially troubled properties.
Among the owners that made purchases in 1998, their properties
and plans for renovation, are:Starwood, which is planning a $25 million project to renovate
Westin Maui.Bill Mills Development and Oaktree Capital, which will spend
$20 million to $25 million on Hilton Turtle Bay.Southwest Value Partners, which reopens Keauhou Beach Hotel
(now Aston Keauhou Beach Resort) March 1 following a $15 million
face-lift.Outrigger, which plans to spend $20 million on the Royal
Parent company Outrigger Enterprises also announced earlier this
month that it is buying Aston Wailea Resort.
The chain takes over the property's management on Feb. 1 and is
reviewing plans for the renovation of what will be in a few days
Outrigger Wailea Resort.Marriott, which bought Maui Marriott Resort and will shortly
announce a major renovation of the hotel.
Marriott is also buying the 438-room Waiohai Hotel and adjacent
129-room Poipu Beach Hotel.
Both are owned by Hong Kong-based New World Development Co. and
have been closed since they were damaged by Hurricane Iniki, which
swept through Kauai in September 1992.
Late December, KSL Recreation Corp. completed the purchase of
the 781-room Grand Wailea Resort & Spa at Wailea, Maui.
The hotel, developed and owned by Japanese developer Takeshi
Sekiguchi, was sold by New York-based International Hotel
Acquisitions LLC, which had controlled the property since a
financial restructuring in June.
Also at Wailea, the mortgage of Kea Lani Hotel was purchased
last July by Trinity Investment Trust LLC, its original developer,
from Mitsui Trust & Bank.
Trinity principals earlier owned the hotel, losing it some years
ago to mortgage-holder Mitsui.
According to Trinity, the hotel has undergone continued
improvements since opening in 1991 and no major renovation is
Otaka Inc., owner of the 530-room Kona Surf on the Big Island, a
property long on the market, is reported to be negotiating with a
Also, bids were opened in November for Maui's 550-room
Ritz-Carlton, Kapalua, but there has been no word on the
Owners of hotels purchased in 1997 also have completed
renovations, have them under way or are planning them.On Maui, Embassy Vacation Resort finished a $10 million room
renovation in December, and Maui Islander has refurbishments under
way.In Waikiki, Waikiki Terrace has almost completed improvements,
and Park Shore Hotel begins renovating in March.On Kauai, Holiday Inn SunSpree Resort held its grand reopening
celebration in November following the completion of a $9 million
Until last summer, Hawaii, it seems, was a hotel sellers'
market, with prices approaching levels of the late 1980s.
It did not start that way.
The first major property sold was the 1,260-room Hilton Waikoloa
(then a Hyatt) on the Big Island in 1993.
Pan Global Partners, with Hilton, bought a hotel that cost $360
million to build for just $55 million five years after it opened,
then pumped in $30 million in improvements.
Subsequent ownership changes, followed by major renovation
projects completed through 1997, included Honolulu's Kahala
Mandarin Oriental, Orchid at Mauna Lani on the Big Island and
Kapalua Bay Hotel on Maui.
Prices per room probably reached bottom in 1995 or 1996.
With booming financial markets, and mainland hotel prices
accelerating faster, Hawaii remained attractive, and prices
continued to rise.
Last August, for example, Marriott paid $145 million for the
Maui Marriott -- just a little less than it sold for in the late
It competed with Hilton at a foreclosure auction, paying more
than $200,000 a room (compared with $44,000 a room paid for the
Hilton Waikoloa Village five years earlier).
Then the market changed.
Wall Street began looking at hotel purchases with a more
A financing crunch led to a slowdown in mainland hotel
construction. (Hawaii is hardly affected: No hotel construction has
been under way here in more than three years.)
In addition, last summer new tax laws eliminated real estate
(REITs) from being a major player in hotel purchases.
Bob Hastings, of hotel appraisers Hastings, Conboy, Braig and
Associates, described the spike in purchases as "pretty well
"There is not much left to buy, tourism is down, and any buyers
are finding it difficult to get financing although some big
institutions are left in the market," he said.
"Hotels are for sale, but there aren't many buyers," said Ron
Watanbe, managing director of Insignia/ESG Hotel Partners Inc.
"Waikiki is hurting," he said, a reference to the destination's
But he also noted factors favoring continued sales.
"There is continued pressure by Japanese banks [for financially
troubled owners] to sell, there are properties that need
renovating, and companies that would like to be in Hawaii," he
Said Barry Baker, asset manager for Southwest Value Partners,
"Hawaii has had some unique opportunities for great values. A few
properties are available, and many are distressed.
"Banks are not so liberal, REITs are not big players anymore,
but liquidity still exists. We will see a different set of
And said Ron Gilligan, of hotel broker R.F. Gilligan Realty,
"There are still hotel companies that want to be in Hawaii and will
pay top dollar.
"We have a long way to go before the fat lady sings."