Hawaii Real Estate Paradise Returns With Goldman Loan – Bloomberg 12-11-12

Hawaii tourism revenue is at a record, spurring real estate investments. Oracle founder Larry Ellison this year bought 98 percent of the island of Lanai.

Goldman Sachs lent $1.85 billion to a once-distressed hotel portfolio with five Hawaiian properties. Companies from Walt Disney Co. to Starwood Hotels are expanding resorts.

Hospitality Advisors says demand has increased from affluent Asian and Northern Californians enriched by tech. STR said Oahu has the highest hotel occupancy of the top 25 US markets. Joseph Toy of Hospitality Advisors said demand is being driven by the resurgence of the Japanese market and increased wealth in China and Korea, and expects real estate investments to increase for the foreseeable future.

Mary MacNeill at Fitch Ratings said tourism has bounced back sooner than expected, while the Japanese tourism decline was not as great as originally expected, and other markets, particularly China and Korea, had a large increase in travel to Hawaii.

HVS and STR expect the average property value for Oahu hotels will rise 24 percent to $547,764 a room by 2015, the second-highest among 65 major U.S. markets, after New York City.

Suzanne Mellen at HVS said the properties (in the Goldman financing) are completely irreplaceable because of the restrictive Waikiki zoning laws that make any new builds nearly impossible – incredible cash cows. Mellen said many lodging investors are limited to redeveloping existing hotels, not constructing new ones, because of strict environmental and zoning laws. Hawaii has the highest barrier of entry market including New York and San Francisco. Mellon said the ripple effect on the Hawaiian economy is phenomenal, with real estate other than lodging also improving.

Stephen Hennis at STR Analytics said any airline cutbacks or economic slumps in countries such as China or Japan may quickly upset Hawaii’s recovery because you can only get there by plane or boat, plus its dependence on discretionary spending.

Colliers Intl said building-permit volume, including residential and industrial applications, climbed to the highest level since the 2007 record.