Hawaii’s Rising Rents Continue to Support Multifamily Investment Interest

by Taylor Williams

As one of the premier global tourist destinations in the world, the Hawaii market is dominated by condos and hotels. It is also home to mega investment deals.

A review of Hawaii’s investment market over the past three years shows that the hotel industry has made up the following percentage of the top 10 deals for each year:

• 91 percent in 2017

• 55 percent in 2018

• 23 percent in 2019

The total sales volume for these deals has also seen a decline from more than $1.5 billion in 2017 to less than $926 million in 2019 as a result of a decline in foreign investors.  In case you’re wondering, yes, there are multifamily properties in Hawaii.  In fact, apartment sales represented 37 percent of the total sales volume for the top 10 deals in 2018. The largest investment deal was the $540 million portfolio recapitalization of Project Europa on Ewa Beach in Oahu.  This was larger than the $505 million Global Hyatt Portfolio sale, which included the Grand Wailea in Maui.  Institutional sales in 2018 were in the range of $371,000 per unit to $395,000 per unit, with cap rates in the 4.5 percent to 5 percent range.  This figure hit $407,000 per unit in 2019, with an estimated 4.5 percent cap rate, which was supported by Blackstone Group’s $211.5 million acquisition of a 520-unit former military housing portfolio.  These values per unit continue to climb due to high barriers to entry, low vacancy rates, major development hurdles and increasing rents, all of which have made Hawaii a landlord’s market.

The majority of new development is occurring where the population is based — on Oahu. In early 2019, Douglas Emmet announced plans to convert the 25-story Bishop Place office building into 500 apartments, which will remove 500,000 square feet of office space from the Honolulu CBD market. A $223 million public-private partnership between the State of Hawaii, Standard Communities and Stanford Carr Development was also announced in May 2019. The partnership plans to reposition 1,221 affordable housing units on the islands of Hawaii, Maui and Oahu. Meanwhile, Highridge Costa is touting its $130 million Kulana Hale mixed-use community in Kapolei, which will add 143 units as part of Phase II, while Brookfield Properties held a groundbreaking ceremony in September for Waikiki’s first new for-rent apartment development in decades at the site of the 28-story Lilia Waikiki, which will contain 402 units.

Affordable housing is in demand by all Hawaii government entities and especially by the people who call Hawaii home. The art of the deal is to bring together the economics of developing new projects in Hawaii. The lengthy red tape of the development cycle should result in controlled development that allows us all to appreciate the beauty of Hawaii for many years to come.

— By Keoni Fursse, CEO and principal broker, Kokua Realty. This article first appeared in the January 2020 issue of Western Real Estate Business magazine. 

You may also like