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Waikiki: Present and Future - Extended Version

Six tourism leaders gather for a Hawaii Business forum to discuss Waikiki’s strengths and weaknesses, and how to keep it a robust engine of Hawaii’s economy.

(page 1 of 4)

Panelists:

  1. W. David P. Carey III: President and CEO, Outrigger Enterprises Group
  2. Rick Egged: President, Waikiki Improvement Association
  3. Eric Gill: Financial Secretary-Treasurer, Unite Here Local 5 Hawaii
  4. Ernest “Ernie” K. Nishizaki: Executive VP, Kyo-Ya Co. LLC
  5. George D. Szigeti: President and CEO, Hawaii Lodging & Tourism Association
  6. David Uchiyama: VP, Brand Management, Hawaii Tourism Authority
  7. Moderator: Steve Petranik, Editor, Hawaii Business

Petranik: What has improved in Waikiki over the past decade?

Egged: Over the last 10 years, it’s become better. Properties have improved and many hotels have been renovated, so streetscapes have improved, although we’re still working on redoing all the sidewalks.

Szigeti: I read an article that says, in the past, people would go to Maui and all the Neighbor Islands as a destination, not wanting to come to Waikiki by design. But with all the improvements that have been made, Waikiki is now a destination. People want to come here and experience Waikiki.

Carey: There is a change in vacation habits and preferences, too. When I started, everybody would lie on the beach, read a book, relax and not do very much. Nowadays, there’s a much higher bias toward activities, shopping, restaurants. The Australians, in particular, like a much more active lifestyle vacation than say the Americans or the Canadians. And the Asians like to shop.

Ten years ago, if I wanted to take somebody to a restaurant of high quality, there were not many choices in Waikiki.

Today, you have plenty of choices, lots of different places, lots of different menus, though not as much entertainment. And there’s a much wider variety of retail that appeals to more markets.

Nishizaki: I agree the overall Waikiki experience is better. The investments have been done, more and more visitors are here and, obviously, the employees are happier, enjoying working here. Waikiki has reinvigorated itself in the last 10 years.

Petranik: Let’s invert that. What are the problems that Waikiki still has?

Egged: Our beach erosion. We’ve been working on sand restoration projects over the last few years, but it’s clear that we need a plan for ongoing beach maintenance or redoing some beach structures in order to maintain Waikiki beaches. We did a study in about 2008 that said we’d lose $2 billion a year if we didn’t have a beach. Today, it would be even more.

I think there needs to be sand replenishment on a regular basis – every so many years, we should do each area, because you can’t do the whole beach all at once. We can do it in a phased way and add beach structures to widen the beach.

Frankly, with sea level rising and climate change, we need to reinforce the beach as a buffer between our properties and the ocean, in addition to the beach being a big attraction. This is going to be on our agenda over the next few years.

Szigeti: The homeless situation has been a long-term problem and it’s epidemic. But it’s not just a Waikiki problem, it’s a universal thing – countrywide, statewide, countywide. We’ve been working very closely with Senator (Brickwood) Galuteria, the mayor, the private sector, (state homeless coordinator) Colin Kippen. Everyone seems very engaged in the process of tackling a very difficult subject. The mayor has an action plan; the Housing First model looks like it could really work. It’s working in other states and I think we’ve made some progress.

Egged: Along with Housing First, we need to defend public spaces, too. I think the city has taken a front and center role in doing what Colin Kippen calls compassionate disruption by not allowing the homeless to occupy public spaces.

Szigeti: It’s a health and safety issue, too, because you can talk about cleaning beaches, but if they’re going to defecate on the beach at night, and locals and visitors put their towels down there the next day, it becomes a health and safety issue for everyone.

Gill: From my point of view, the physical improvement of Waikiki is great. It draws visitors and visitors drive business that creates jobs. The problem is we don’t see a similar commitment to the jobs. This is a function of the ownership patterns of our hotels. Many of our hotel owners are private-equity companies and they’re not really in the hotel business. They are more than happy to put the capital expenditures in to increase the value of the property on resale, but that increases the debt load on the property, with the same number of rooms. We’re already running virtually 100 percent occupancy on most of the beach, so where does this new money come from to pay for these improvements and it’s our observation that it comes from the workers. As it stands, we lose jobs when hotels change hands and the debt service associated with that.

Most of these private-equity firms are on a strict timetable to pay investment groups, so we’re faced with a constant flipping of properties and a constant increase in debt service and there’s only so much room rates can increase.

Occupancy is already maxed out pretty much and so the difference comes from our community, from our jobs base, employment base, tax base provided by the workers in the hotels.

What happens when these guys don’t make their numbers and then need to retire their position? They look into selling condos and condos do not provide the long-term employment base. In some cases, they eliminate it entirely and that reduces the tax base. Our interest is in providing good jobs for Hawaii’s people and this industry is the primary job generator. We’re concerned that the commitment to the jobs weakens as each new owner comes in.

Blackstone (Group LP) just put $100 million into the Hyatt. It’s all capital expenditures. They will put that on the purchase price when it sells. In the meantime, I’m expecting we’re going to lose jobs in that. We had a record year for hotel sales, but that doesn’t translate into prosperity for Hawaii’s economy.

Petranik: Do you see a way out of this?

Gill: We think investors who wish to convert hotel properties to condominiums should stay away. We have given our beaches over to these corporations in return for jobs. Well, they built and got the beach, and now they want to take away the jobs. That’s irreplaceable beachfront for the people of Hawaii. I had the privilege and opportunity to have to deal directly with Blackstone and their vision of the future of the (hotel) industry is very different from ours and I don’t think that works well for the people of Hawaii. I’m not singling out Blackstone (owners of Hilton and Hyatt hotels) – the biggest hotel owner …

Carey: The biggest hotel owner in the world.

Gill: And when they make certain moves, it creates ripples and rumbling in the market. We’re very concerned about that. On a different subject, we’ve certainly seen a marked improvement in the quality of the physical space in Waikiki. What we don’t see is any significant return to Waikiki of local business.

Carey: Sorry, I have to disagree with that. In our business, we have seen quite a return of locals to Waikiki. At Beach Walk, we have a lot of locals who come now. We run a place called Kanikapila Grill, where locals come all the time.

Gill: I agree that we have seen some return. The reason I raise it not to disagree with you, but because the biggest job losses we’ve had are in food-and-beverage operations and those food-and-beverage operations used to be fairly well supported with local coverage. Everybody does well when the hotels are full, but when they’re not full, nobody’s working.

Local business for our food-and-beverage operations used to smooth out those peaks and valleys. So, I agree with you.

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