Investment impact ahead for Hawaii hotels

Original Article

Few industries in Hawaii have taken more of a beating during the Covid-19 pandemic than hospitality, as hotels, restaurants and activity businesses had to severely curtail or shut down their operations when the state imposed a mandatory 14-day quarantine for visitors arriving from the Mainland or overseas.

For hotels, the impact has been severe — a hotel without guests is a business without revenue. Hawaii hotels experienced a drop of more than $1 billion in revenue during the first half, or a 50% drop from 2019, according to a report released this week by CBRE’s Honolulu office.

And a business without revenue is a problem for hotel owners looking for returns on their investments — and lenders expecting payments on some very large loans.

After experiencing high rates of occupancy over the last couple of years, most hotels and resorts from Waikiki to Maui, Kauai and Hawaii Island dropped to near-zero occupancy after shutting down operations more than four months ago, furloughing thousands of workers.

A plan to allow international and Mainland visitors who present negative Covid-19 tests to bypass the mandatory 14-day quarantine was set to start Saturday but was delayed by a month to Sept. 1. However, that date was called into question recently amid a surge in new coronavirus cases.

Hotels have also been notifying the state Department of Labor and Industrial Relations over the past two months that they are expecting the thousands of temporary furloughs implemented in late March to continue for an additional six months or more, and some of those furloughs have been converted to permanent layoffs.

The lack of occupancy and revenue could signal a shift in ownership for some Hawaii hotels and resorts, as investors flush with cash seek out opportunities in a pandemic environment where current owners and investors struggle to pay their bills.

“It's going to have a devastating impact on the ownership of Hawaii hotels, and the capital stacks for the hotels, the ownership stacks, are essentially turned over,” said F. Kevin Aucello, who recently launched Powell & Aucello Hotel Real Estate Advisors with retired Hilton executive Tim Powell. “Because so many loans are not being paid right now, because there's obviously no income, we anticipate seeing a great deal of turmoil and a great deal of change.”

Nationally, revenue per available room, a key metric for hotels, dropped in the second quarter, by 79.9% in April, 74.2% in May and 60.6% in June.

But in Hawaii, the drop was more severe — 94.5% in April, 91.1% in May and 89.3% in June, according to the CBRE report, which said a 1% decline in RevPAR translates to a 7% decrease in operating profit because of the fixed costs associated with operations — including taxes, insurance, utilities, security and maintenance — as hotels burn through cash to keep the lights on.

“This is an unprecedented time … even after the 2001 bubble and Great Recession of 2008, hotels didn’t have to deal with losing money on the operations side before debt,” Henry Bose, senior vice president of hotel brokerage and investment sales at CBRE’s San Francisco office, told Pacific Business News. “The longer this goes on, that burn rate is really cutting into hotels across the country but especially in a market like Hawaii.”

Some hotels are going back to investors for more money to pay debt service, while others are looking for breaks on real property tax, said Hawaii hospitality consultant Erik Kloninger of Kloninger & Sims Consulting, who prepares the visitor plant report for the Hawaii Tourism Authority.

“Even with properties that have stayed open that are operating at 10% to 30% occupancy, that’s not enough to keep current on debt service generally,” he told PBN. “They’re looking to preserve the asset. If you shut down you still need to spend money to secure the asset and keep mechanical systems running.”

The hotels most at risk are the properties have traded hands since 2017. More than a dozen hotels across Hawaii, large and small, were acquired in that time period, “hotels that would have traded fairly recently at high pricing with a lot of debt on them,” Kloninger said.

“As prices have gone up and up, those deals made sense with the market running at – or near — historic record levels,” he said. “Assets that traded based on that type of market performance are going to have huge debt burdens on them.”

Other properties have refinanced during that time period, “taking advantage of the strong market and low rates,” he said.

Hawaii hotels that have traded hands since 2017

- Alohilani Resort Waikiki Beach*, $515 million, Commerz Real
- Turtle Bay Resort, 2017, $332.5 million, Blackstone
- Mauna Lani Bay Hotel & Bungalows, $195.7 million**, ProspectHill Group/Pat Fitzgerald

- Grand Wailea, $1.1 billion, Blackstone
- Andaz Maui at Wailea, 2018, $366 million**, Host Hotels & Resorts
- The Ritz-Carlton, Kapalua, $275 million, Blackstone
- Hilton Garden Inn Waikiki Beach, $212 million, Dune Real Estate Partners/Highgate
- Aston Waikiki Beach Hotel, 2018, $200 million*, Rockpoint/Highgate
- Princeville Resort, $225 million, Starwood Capital
- Courtyard by Marriott King Kamehameha’s Kona Beach Resort*, $103.5 million, Blackstone

- Holiday Inn Express Honolulu-Waikiki, $205.5 million, Gaw Capital Partners
- Land beneath Alohilani Resort, $195 million, Safehold Inc.
- Land beneath Hilton Waikiki Beach, $78 million, HWB Hawaii LLC
- Park Shore Hotel*, $37.08 million, Dune Real Estate Partners/Highgate
- Maui Beach Hotel, $27.5 million, Ampersand Venture 1 LLC
- Travaasa Hana, $27.4 million, Mani Brothers Real Estate Group
- Ewa Hotel Waikiki*, $19.6 million, Belluna Honolulu LLC

* Leasehold | ** Real estate only

While such details are not always public, there are acquisition loans and refinancing deals in the hundreds of millions — if not billions — of dollars for other Hawaii hotels.

Nationally, 20 hotel loans unexpectedly defaulted by June 30, according to a recent report by Fitch Ratings, which expects more than 3,200 loans to default over the next few months because of the pandemic.

“The properties that traded over the past two years probably traded at the top of the market,” said Steve Sombrero, president and CEO of Cushman & Wakefield ChaneyBrooks. “The values that were seen at that time no longer apply today. The [loans are] probably upside down right now.”

Ben Rafter, CEO of OLS Hotels & Resorts and a member of the HTA board of directors, recently said during a virtual panel discussion on tourism that when the pandemic started, most lenders granted three-month extensions on debt and ground-lease payments, and said owners were likely to get another extension.

“Almost all hotel investors are under pressure,” Rafter told PBN in an interview. “For those that have had strong relationships with banks, the banks have been showing some flexibility. In Hawaii, especially for small investors, local players, that’s beneficial because it gives them time for things to work out and for the market to come back.”

However, some Hawaii hotel acquisitions have been financed with commercial mortgage-backed securities, some of which are delinquent and have been transferred to special servicing, which traditionally have been the first steps to foreclosure.

But CMBS is “very inflexible,” Rafter noted.

“Special servicers … who have CBMS loans, on those loans, the covenants are very clear and the documents say if the payments are not made then the special servicer has to take action, so it's more concrete on what they have to do,” Aucello said. “We anticipate that the CMBS loans will be the first ones that will have some kind of foreclosure activity.”

Aucello also said some investors may inject additional “rescue capital” into properties as a way to help them stay afloat, but also as a way to acquire an ownership stake — silent or participating — in the property.

But despite the risks of loans defaulting, most hotel experts believe few, if any, Hawaii hotels will end up in foreclosure, and even those headed in that direction would likely be acquired by investors long before they end up at auction or returned to the lender.

One big difference between the current situation and past downturns, Bose said, is that “there’s a stable of extremely well-capitalized investors looking for opportunities.”

Steve Sombrero, president and CEO of Cushman & Wakefield ChaneyBrooks, said he’s already been contacted by investors seeking to invest in Hawaii hotel properties.

“There’s a lot of capital out there,” Sombrero said. “I get calls from both sides of the Pacific with huge capital just waiting to deploy.”

Sombrero said savvy investors interested in acquiring troubled properties will go directly to the lenders.

“Lenders know who they can rely on to come through with capital, and if they want to keep the debt on the property,” he said. “It’s not enough that you have the capital to take over the property, you have to show you have the ability to manage it and survive through the coronavirus."

Kloninger noted that before the pandemic started, Hawaii, and Waikiki in particular, was “one of the most coveted investment markets.”

“Because it’s a market with very high barriers to entry, you don’t have the concerns about additional competitive supply,” he said. “There are a lot of investment dollars keen to get into Waikiki, looking for opportunities.”

Both Rafter and Sombrero see Hawaii emerging from the pandemic as an attractive, safe place for visitors to vacation and investors to place their capital.

Rafter said the Islands have the advantage of not being overbuilt like other markets, such as New York, and said people still want to travel to Hawaii.

“This is a once-in-a-generation shock that we’re going through,” Rafter said. “Markets that are viewed as safe are going to be attractive and people are going to want to come here because it is safe.”

For investors, Hawaii will “enter the radar of some people who have not viewed Hawaii as a market to invest in in the past.”

And they are unlikely to find bargains in the Islands — Rafter believes the floor in values will end up being higher that some people think.

“We know that there will be deals but I think that those deals will be on a higher cents-of-a-dollar [basis] than people think because there’s so much capital on the sidelines and Hawaii remains an attractive destination,” he said.

Sombrero said he is “bullish on the hospitality business,” and noted that once a Covid vaccine is available in Hawaii, there may be a surge in high-net-worth travelers from Asia seeking to get the vaccine before it’s available in their countries. Hawaii may also enter into a travel arrangement with those countries — Japan this week included Hawaii on a list of 12 possible international travel partners.

“I think this is a tremendous opportunity for people who can understand that and acquire properties toward that end,” he said, noting that Japan, South Korea, Hong Kong and Taiwan have investors ready to buy. “These nations, they have some of the lowest Covid cases, so it really makes sense that if Hawaii is in a position to reopen it would be with these countries.”

Rafter noted that as a leisure travel destination, Hawaii is fairly insulated from the disruption to business travel the pandemic has brought about. Companies that have gained increased comfort with virtual meetings and events may not go back to shuttling employees around the country after the pandemic.

“I see leisure coming back first, which makes us a little healthier than the Mainland,” he said, adding that it’s unlikely many hotels would close permanently. “I don’t see a situation like in New York, where 10% of the inventory could be gone.”

In the near term, however, hotels are waking up to the reality that occupancy is not going to return to 2019 levels anytime this year, and Rafter noted that even if travel resumes on Sept. 1, “the flood of inventory coming back on the market is going to be more than the demand,” before a possible rebound in 2021.

Rafter sees this as a time that hotel owners can rethink the Hawaii market.

In the long term, investors could reposition properties, “downkey” to fewer, but larger, rooms or suites to accommodate families, he said.

He also sees an opportunity in the long term for hotel owners and operators to position Hawaii away from “sun and sand” to put more emphasis on food and beverage, culture, community and history.

“Long term, I really like Oahu as a market because it’s a market where we can showcase all of Hawaii,” he said.

“If there are silver linings, I think we can accelerate toward that,” he said. “That’s critical for Hawaii’s future, the next generation wants a little more in an experience, to understand the host culture. If we don’t go down that path …we’re making ourselves less competitive for future travelers.”



Covid-19 のパンデミック中、ハワイの産業の中でホスピタリティ業界ほど大きな痛手を受けた業種はない。米国政府が本土並びに海外からの渡航者に対して14日間の自主隔離を義務付けた際に、ホテル、レストラン、各種アクティビティビジネスは営業を大幅に削減または停止せざるをえなかった。







「これはハワイのホテル所有に壊滅的な影響を及ぼし、ホテル業界の巨額の資本、数々の所有権が、本質的に入れ替わってしまう」とF. Kevin Aucelloは言う。彼はヒルトンの元重役Tim Powellと共に、最近Powell & Aucello Hotel Real Estate Advisorsを立ち上げた。「現在あまりにも多くの貸付に対する返済が滞っており、言うまでもなく収益もないため、非常に大きな混乱と変化が起こってくると予測している」



「こうした事態は前代未聞です … 2001年のバブル崩壊や2008年の大恐慌の後ですら、負債は別としてホテルが営業部門で資金不足となるような事はなかった」とCBREのサンフランシスコ支部でホテル売買仲介および投資販売部門のシニアバイスプレジデントを務めるHenry Boseがパシフィック・ビジネスニュース(PBN)に語った。「この事態が長引けば長引くほど、運営資金の焦げ付きが全国のホテルに大きな負担となっていき、ハワイのような市場ではそれがさらに顕著になる」

債務元利払いに必要な追加資金を求めて投資家のところへ再度頭を下げに行くホテルもあれば、固定資産税の節税を目指すホテルもある、とErik Kloningerは言う。彼はKloninger & Sims Consultingでハワイのホスピタリティ業界コンサルタントを務め、ハワイ州観光局のビジター・プラント・インベントリー報告書を作成している。







  • アロヒラニ・リゾート・ワイキキビーチ*、5億1,500万ドル、Commerz Real
  • タートルベイ・リゾート、2017年、3億3,250万ドル、Blackstone
  • マウナラニベイ・ホテルアンドバンガローズ、1億9,570万ドル**、ProspectHill Group/Pat Fitzgerald


  • グランド・ワイレア 、11億ドル、Blackstone
  • アンダーズ・マウイ・アット・ワイレア、2018年、3億6,600万ドル**、Host Hotels & Resorts
  • ザ・リッツ・カールトン、カパルア、2億7,500万ドル、Blackstone
  • ヒルトン・ガーデン・イン・ワイキキビーチ、2億1,200万ドル、Dune Real Estate Partners/Highgate
  • アストン・ワイキキビーチ・ホテル、2018年、2億ドル*、Rockpoint/Highgate
  • プリンスビル・リゾート、2億2,500万ドル、Starwood Capital
  • コートヤード・バイ・マリオット・キング・カメハメハズ・コナビーチ・リゾート*、1億350万ドル、Blackstone


  • ホリデイ・イン・エクスプレス・ホノルル-ワイキキ、2億550万ドル、Gaw Capital Partners
  • アロヒラニ・リゾートの敷地、1億9,500万ドル、Safehold 株式会社
  • ヒルトン・ワイキキビーチの敷地、7,800万ドル、HWB Hawaii 有限責任会社
  • パーク・ショア・ホテル*、3,708万ドル、Dune Real Estate Partners/Highgate
  • マウイ・ビーチ・ホテル、2,750万ドル、Ampersand Venture 1 有限責任会社
  • トラバーサ・ハナ、2,740万ドル、Mani Brothers Real Estate Group
  • エワ・ホテル・ワイキキ*、1,960万ドル、Belluna Honolulu 有限責任会社

* 土地貸借権 | ** 不動産のみ



「過去2年間に売買された施設は、おそらく市場の最高レベルで取引されている」とCushman & Wakefield ChaneyBrooksの社長兼CEOを務めるSteve Sombreroは言う。「当時見積もられていた価格は今ではもう妥当ではない。おそらくその貸付は現在逆になっているだろう」

OLSホテルズ&リゾーツのCEOでHTA重役会役員を務めるBen Rafterが先日の観光業界に関するオンラインパネルディスカッションで語ったところによると、パンデミックが始まった当時、ほとんどの債権者が債務と土地賃貸借の支払いに関して3ヶ月の猶予を与えており、ホテルオーナーらは今後さらに猶予が望めるだろうという。








Cushman & Wakefield ChaneyBrooksの社長兼CEOを務めるSteve Sombreroは、ハワイのホテル物件に投資したがっている投資家からすでに連絡を受けていると言う。
「資本金はあるところにはあるものです」とSombrero は言う。「いつでも出資可能な巨額の資本を有する投資家たちが、太平洋を挟んだ両側から電話をかけてきている」

Kloningerによると、パンデミックが始まるまでは、ハワイ、特にワイキキが「 もっとも注目されている投資市場の一つ」であったという。