Hospitality purchases lead Hawaii commercial real estate investments

Hospitality purchases at more than 23% were the largest share of Hawaii’s $1.93 billion commercial real estate investment in 2023, with Outrigger Hotels and Resorts’ $325 million acquisition of the Outrigger Beach Ka’anapali Hotel topping the list.

Investment in Hawaii’s hospitality market led by Outrigger saw a 98% year-over-year increase, according to the fourth-quarter 2023 Colliers Hawaii/Oahu Investment Report. Mark Bratton, Colliers senior vice president Hawaii, said it helped limit losses for Hawaii’s overall commercial property investment market, which dropped for the second year in a row.

Bratton said Hawaii’s limited supply of properties kept it more resilient than the U.S. commercial real estate investment market, which saw a 51% contraction in year-over-year activity, according to data from MSCI Real Capital Analytics.

A reason that Hawaii fared better is that it still has limited inventory, Bratton said.He added that cash buyers and owner users, like Outrigger, also stepped up their game.

Total sales volume for the Hawaii investment market in 2023 declined 18.6% from $2.37 billion in 2023.The number of deals in 2023 also dropped to 242, a nearly 31% decrease from the 349 in the prior year.

Neither 2023 or 2022 was as good as 2021 when low- interest rates and post COVID-19 pent-up demand generated $3.15 billion in sales volume and 353 transactions, a 16-year high. Rising interest rates, economic uncertainties and a decrease in institutional investment activity in 2023 contributed to the dampening, which led to a decline in megadeal activity.

Brandon Bera, Colliers executive vice president, said in a statement, “Investors will be seeking a redemption story in 2024 with positive momentum building in the latter part of the year. The Fed’s actions will largely determine if increased transactional activity materializes.”

Bratton said U.S. mainland investors scaled back on Hawaii investments in 2023 as did international investors. A Japanese entity’s $45.5 million retail acquisition of 270 Beach Walk was the only foreign transaction in Hawaii’s commercial real estate investment market in 2023.

Outrigger’s 2023 investments “really moved the needle, ” Bratton said, adding that the hospitality market in Hawaii, which has a lot of large resorts and megadeals, often leads Hawaii transactions. In 2022, hospitality sales were just 7.8% of the market and they were 26.2% in 2021 and zero in 2020. They were 14.1% in the post-pandemic 2019 and megadeals skewed results to 46.7% in 2018, 55.8% in 2017 and 55.1% in 2016.

Bratton said the Outrigger deals underscored Hawaii’s allure as a premier destination. He added that Outrigger’s Hawaii hospitality investments in 2023 show their “recommitment to prime properties in Hawaii and their partners recommitment to having the best of the best — that’s probably an advantage of being owned by KSL.”

The Outrigger chain, which was founded in Hawaii by Roy and Estelle Kelley in 1947, improved its access to capital in 2016 when it was acquired by KSL Capital Partners, a Denver­-based private equity firm specializing in travel and leisure.

“Outrigger is committing right in their backyard to acquiring beachfront assets fee-simple in Hawaii and it takes a lot of capital to do that,” he said. ” They were the entire hospitality market themselves last year.”

The Outrigger Ka‘anapali Beach Resort and the Outrigger Kauai Beach Resort & Spa brought the count of Outrigger’s beach resort purchases to eight over a two-year period. Outrigger currently owns or operates 25 resorts, hotels and vacation condos throughout the isles. The company has another seven across the globe.

From July 2021 t0 August 2023, Outrigger purchased four resorts in Hawaii, including the Outrigger Kona Resort & Spa , the Outrigger Kaua’i Beach Resort & Spa, and the Outrigger Ka’anapali Beach Resort. It also bought the Plantation Inn, but that burned down in the Aug. 8 Lahaina wildfire. Outrigger also acquired three resorts in Thailand and one in the Maldives.

Jeff Wagoner, president and CEO of Outrigger Hospitality Group, said “As a company rooted in Hawaii, Outrigger’s investment strategy reflects our confidence in this unique island destination and our steadfast commitment to its communities. Through the recent acquisitions of Outrigger Kona Resort & Spa, Outrigger Ka‘anapali Beach Resort and Outrigger Kaua‘i Beach Resort, we’ve solidified our presence across the four largest Hawaiian Islands. Moreover, we are dedicated to a continued reinvestment of $300 million to enhance our Hawaii properties, all while prioritizing the empowerment and success of our team members through robust support and resources.”

Wagoner’s remarks came as the company held a special event Monday for the Monkeypod Kitchen by Merriman-Waikiki, which with its July 2023 opening completed Outrigger’s $85 million transformation of the Outrigger Reef. The event was part of the VIP opening reception for the Travel Weekly Hawaii Leadership Forum.

At the time of the Ka’anapali Beach Resort purchase, Wagoner said it had already undergone a $75 million renovation, and that Outrigger was planning a multimillion-­dollar modernization and renovation plan to continue the improvements.

Outrigger spokesperson Monica Salter said at the time of the Outrigger Kaua‘i Beach Resort & Spa purchase that the company’s plans included a $25 million enhancement for infrastructure improvements as well as a refresh of the guestrooms, lobby and surrounding grounds.

Keith Vieira, principal of KV & Associates, said the level of hospitality investment in Hawaii in 2023 proves that the industry is a driver of Hawaii’s economy.

While owner users like Outrigger tend to hang onto their properties longer, the typical hotel investment and repositioning cycle is seven to nine years.

Vieira said each time a property changes hands, owners tend to invest in the asset, “which creates significant construction jobs and bigger, better hotels that have more employees.”

He said repositioning drives higher room rates, which tends to attract higher-spending visitors who generate more trickle-down economic stimulation and higher taxes.

“Most significant is the taxes paid. If you look at 2009, TAT (transient accommodations tax) was $100 million and 2019 it was $1 billion. That’s because of repositioning of hotels,” Vieira said.

TOP FIVE FOURTH QUARTER 2023 COMMERCIAL REAL ESTATE INVESTMENTS

Price/ Property/ Category/ Buyer

$325 million/ Outrigger Ka’anapali Beach Resort/ Hotel /Outrigger Resorts and Hotels

$130 million /1245 Mauna Kea St./ Multifamily /Stanford Carr Development and Stanford Carr Communities

$76.8 million/ Davies Pacific Center/ Office /DPC Development LLC

$66 million /Niumalu Marketplace /Retail /WPC Niumalu LLC

$58 million /Outrigger Kaua’i Beach Resort /Hotel /Outrigger Resorts and Hotels

Source: Colliers