Hawaii hotels are at the top of their game, taking in a record $508 million in July and attracting investors willing to spend billions for a piece of the action.
While the hotels are setting new revenue marks, companies are paying record prices to buy hotel properties.
In 2012, nine Hawaii hotels traded hands for $240.2 million, or roughly 4.9 percent of the total sales volume for Hawaii’s commercial real estate market. Last year, 15 hotels were sold for $1.9 billion, or 54.4 percent of the total commercial real estate sales volume, said Mike Hamasu, director of consulting and research for Colliers International.
As of June this year, there were $816.2 million in hotel transactions, Hamasu said.
Joseph Toy, president and CEO of Hospitality Advisors LLC, expects the number to exceed $2 billion by the end of the year.
"I think that we’ll finish the year well north of last year’s investment record," Toy said.
What’s driving the market is Hawaii’s strong hotel performance, along with relatively low interest rates and the low inventory of properties for sale. Hawaii’s diverse visitor base and growing airline access have also played a significant role in attracting investors.
The $508 million record hotel revenue reached in July included $344 million from room rates, an all-time high, with the remainder coming from food, beverage, retail, parking and other sources.
Hawaii’s hotel industry also set July-only records for revenue per available room (RevPAR) and average daily rate (ADR), Toy and STR, a hotel research company, reported.
Statewide July RevPAR rose 6.8 percent to $207.12. Likewise, statewide ADR in July climbed 3.8 percent to $254.45. While statewide occupancy didn’t set any records for July, it did rise 2.3 percentage points to 81.4 percent, which hoteliers consider a full house.
"If you were to talk to anybody in the industry in March, everyone had a lot of concerns about the summer, but we saw improvements that have continued to support increases," Toy said. "And we are definitely seeing that the strength in hotel revenues continues to drive transactions."
John Votsis, director of sales and marketing for Trump International Hotel Waikiki Beach Walk, said he’s not surprised by the numbers or the interest.
"When business is good in the community, other investors look for ways to take part in it," Votsis said. "In the ’60s and ’70s we had incredible occupancy relative to that era and by 1971 the state bird was called a construction crane. That’s true today because the reality is that good news always attracts more money. I can tell you that there weren’t too many people looking at us back in 2008 and 2009 when we were sucking wind."
Ben Rafter, president and CEO of Aqua Hospitality and president of Aston Hotels & Resorts, can attest to the trend.
"Aqua went from one location, Waikiki, to six islands, seven if we include Guam. We have gone from a handful of properties to 29," Rafter said.
Despite investment growth, Rafter said there is still room for greater product diversity in Hawaii’s hotel market, which he expects would benefit from the addition of some of the upscale hostels that are successful in Europe and on the East Coast, along with intimate, boutique properties that have stronger food and beverage components.
"I would like to see us continue expanding some of our renovations with newer and different concepts," Rafter said. "Personally, I think there’s still room for more boutique properties in Waikiki where Vive and Shoreline and Aqua properties like Hotel Renew and Lotus have been trendsetters for an underserved portion of the market."
Having cycled through much of the available inventory, Toy said investors have started planning a few new builds in places like Waikiki or in areas where they are already are approved for expansion, such as Turtle Bay, Ko Olina, Princeville Resort and Makena Resort or in community locations like Laie, Kapolei or Koa Ridge, the master-planned community in Central Oahu.
"I think it will be another record year; it’s just a matter of finding the right inventory and product," said Mark Bratton, a vice president for Colliers International. "The market fundamentals have led to a vigorous amount of sales in Waikiki where investors believe the future is bright. They are confident that they can make higher net profits in the future and that they’ll continue to be able to raise rates."
To be sure, Toy said Oahu hotels in July set a new ADR high of $237, the highest average daily rate ever paid for any given month.
"In July, we had an amazing growth month. It was really strong from start to finish," said Kelly Sanders, Waikiki area managing director for Starwood Hotels and Resorts. "Going forward, occupancy is not as strong, but we expect ADR will hold up well in October, November and December."
Sanders said strong group business played a significant factor in raising July’s performance levels.
"It creates an important base of business that we welcome at any time," he said.
For example, this week Sheraton Waikiki is benefitting from hosting the 22nd annual Hawaii Star Ball, a ballroom dancing competition. Many of the 200 competitors, who hail from multiple countries, have lured family and friends to Oahu.
"We have competitors who came all the way from Hong Kong, Japan, the mainland, Ukraine, Italy and other faraway places," said David Alvarez, president and organizer of the Hawaii Star Ball. "It’s a three-day event, but they come the weekend before and many stay through the weekend after. It’s very good for Hawaii hotels. This hotel is sold out for three or four days this week."
Sanders said he expects hotel revenues to be up anywhere from 4 percent to 6 percent by year’s end. While that’s moderate growth compared to the last two years of double-digit growth, it’s significant given that it comes on top of 2013, which Sanders said was "the best year that Hawaii tourism had ever seen."
The strong hotel performance leads to more hotel transactions, which Votsis said is good for Hawaii because it brings more employment and infrastructure investment as well as more tax revenue.
"That money," he said. "goes to everyone."
JULY HIGHS: $508 MILLION
>> Hotels took in a record $508 million. That amount included $344 million from room rates, an all-time high, with the remainder coming from food, beverage, retail, parking and other sources.
INVESTORS TAKE NOTICE
Notable hotel transactions through June:
>> $325 million for the Wailea Marriott
>> $183 million for the Aston Waikiki Beach
>> $142 million for the Ritz Carlton Kapalua
Source: Colliers International
EXPECTED TRANSACTIONS: $2 BILLION
>> Investors have made $816.2 million in hotel transactions through June. The number is expected to exceed $2 billion by the end of the year.
WHAT’S DRIVING THE MARKET?
>> Hawaii’s strong hotel performance, along with relatively low interest rates and the low inventory of properties for sale. Hawaii’s diverse visitor base and growing airline access have also played a significant role in attracting investors.
