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Seeing Green

As lush as ever, the Garden Isle of Kauai is enjoying signs of economic recovery.

In Hanalei, on the North Shore of Kauai, all of the coastal homes are up on stilts. Tiers of stacked cinder blocks support hundreds of homes, raising them high above the ground, safe from any prospective storms or floods. In the same manner, particular industries on Kauai have risen like cinder blocks, keeping the island’s economy afloat following a devastating blow to the state’s economic mainstay, tourism.

Green Thumb: Agriculture is but one of the many industries showing signs of growth on the island.

On Kauai, paltry nightlife and an unimpressive retail array never really drew in the Japanese market anyway. Visitor numbers tapered slightly immediately following the Sept. 11 attacks, but have since grown, and, by the end of 2001, Kauai had seen its fifth consecutive year of 1 million-plus visitors. Construction activity, which was strong before Sept. 11, continues to make headway also: 2001 building permit values for private building construction saw more than a 40 percent increase over 2000, exceeding $200 million for the first time since 1990. Economists say Kauai is actually faring quite well, and expect a full recovery to pre-Sept. 11 levels by year’s end, with positive growth resuming in early 2003. In fact, a burgeoning timeshare industry, a thriving tech community and a surge in property values have left Kauai residents shrugging, “What recession?”

TOURISM

If Kauai’s economy were a circus, its tourism industry would be on the tightropes, performing a vigilant balancing act, but hanging in there. While occupancies were down two percentage points, to 68.6 percent, in March of this year, over last, that was leveraged by a 3.2 percent increase in average daily room rates to $170.21. Similarly, visitor counts were down 7.5 percent over the year prior, but the average length of stay increased more than 26 percent, according to the Department of Business, Economic Development and Tourism.

Overall, the island is faring much better than Oahu, primarily due to its maturing timeshare industry and an insignificant decline in Japanese visitor arrivals. “The timeshare visitors have proven twice now, to prop up Kauai’s visitor industry. After [Hurricane] Iniki, they were a significant percentage of the initial visitor counts that came in, and now it’s the same story,” says Margy Parker, executive director of the Poipu Beach Resort Association. “There was a slight drop of about 5 percent to 10 percent right after Sept. 11 – and that drop was only down into occupancies in the 80 percentiles – but it quickly picked back up into the 90s.”

For years, Kauai has been the dominant leader in Hawaii’s timeshare industry, with its 1,600-plus units accounting for nearly 40 percent of the statewide total. Last year, the island saw a 5.1 percent increase of its total units, and that figure will likely increase over the next few years as property owners continuously convert condos and hotel rooms into timeshare units.

“Timeshares turn visitors looking in from the outside into somebody with ownership interests, and into slightly better stewards of the land,” says Ricky Cassiday, research director for Prudential Locations. “Their loyalty becomes a lot stronger and it modulates the swing in visitor income.”

Sue Kanoho, executive director of the Kauai Visitors Bureau, says the outlook for the tourism industry is positive. With three new direct flights coming in from California beginning this month, Kanoho is confident of increased visitor arrivals by year’s end. “The first-quarter numbers are still reflecting Sept. 11 impacts,” says Kanoho. “Barring any more negative events, I anticipate that summer will hopefully bring our numbers up to a better level, and I’d be happy with ending the year flat.”

AGRICULTURE

Kauai’s agriculture industry is in a state of flux. With its unique landscape offering farmers the opportunity to harvest taro in the wetlands of Hanalei, or the chance to breed shrimp in the arid plains of Waimea, the island is ripe for a diversified industry. There are a handful of farmers and ranchers stepping up to the plate, but the game has changed. Although sugar is still Kauai’s leading agriculture product (Gay & Robinson, the island’s sole surviving sugar company, is holding up that fort), most major players are looking to carve out alternative niches.

“Clearly there are less agriculture jobs right now, because the crops being planted are not as labor-intensive as sugar, and there was a very different kind of capital investment from the big sugar companies vs. the smaller ones we have now,” says Council Chairman Ron Kouchi. “But ag is certainly sustaining itself, and where we are still right on target is we are finding alternative crops to still keep the land green and have beautiful visual images for the visitors.”

The most recent figures from the Hawaii Agricultural Statistics Service show an increase in the number of various fruit-crop farms on Kauai of 56 percent, from 100 farms in 1996 to 156 farms in 2000. Livestock operations increased as well, from 450 to 500 farms during the same period. But the real story isn’t in the numbers, per se, as diversified agriculture hasn’t completely evolved and crops have yet to be turned over. More impressive, are the types of crops that are popping up islandwide.

On the west side, seed crops are thriving, and farmers are looking to expand those operations, as are the shrimp farm companies located nearby. The North Shore still touts the state’s largest taro production. The cattle-ranching industry is alive and well, and giddy over the amount of pasture acreage available through Grove Farm Co. Inc. Additional attempts are also being made to establish both hardwoods and table grapes as viable, sustainable commodities.

Pipe Dreams: Nawiliwili harbor is the pickup and drop-off point for many of the island’s imported goods.

REAL ESTATE

Depending on which side of the fence you’re on, real estate on Kauai is either incredible or exasperating. Affluent developers and investors, primarily Mainland-based, are having a heyday on the island, purchasing vacant land, high-end homes and everything in between. The tightening of the market is driving prices up and leaving the midrange buyer with few options.

“High-end sales are pulling the prices up across the entire sales range,” says Jim O’Connor, president of the Kauai Board of Realtors. “We certainly have a pent-up demand across the board, and we don’t have enough inventory at the present time to meet all the needs.”

According to Honolulu-based Hawaii Information Service (HIS), total sales values for vacant land increased 62 percent, from $80 million in 1999 to $130 million, last year. The value of residential sales during the same period rose 59 percent, to $229 million. HIS’ April statistics show a mere 4,460 listings for available vacant land and 6,040 residential listings. Furthermore, land and residential sales increased 30 percent and 3 percent, respectively, from 1999 to 2001, and, at the same time, the residential median sales price jumped 18 percent, from $238,500 to $293,250.

With a median sales price for a home on Kauai approaching $300,000, residents are in a quandary. “One of the challenges that Kauai is facing is the first-time homebuyer opportunity,” admits Edward MacDowell, principal broker of Kapaa-based Vision Properties Inc. “Right now, even the rental demand is a problem. We are trying to look for avenues for the first-time buyer, but it is so hard. In a nutshell, this is still a Mainland-investor-driven market.”

TECHNOLOGY

As recently as 1993, the Pacific Missile Range Facility at Barking Sands was a candidate for closure by the U.S. Navy. But heavy marketing of the base, which does projectile testing off the west coast of Kauai, kept the base alive and it has since become the stimulus for a blossoming technology industry on the island.

According to Gary Baldwin, executive director of the Kauai Economic Development Board, PMRF received $124 million in federal funding last fiscal year, and independent technology contractors on the island were awarded $66 million. He says there are definitely opportunities for the U.S. military to take advantage of the base’s strategic location, especially given the heightened state of security of our nation, and he is anticipating an increase in defense spending to the base next year. That’s exactly the kind of talk that’s attracting established dual-use companies to the island (and encouraging smaller startups as well).

“PMRF has become the economic magnet for other high-tech entities to do base support,” says Bob Mullins, site manager for Textron Systems Kauai. Over a five-year period, Textron has received $25 million in military funding to support optical programs the company pursues on behalf of the base.

The company was the first tenant to move into phase one of the West Kauai Technology and Visitor Center. “There are currently 15 high-tech companies on Kauai. In 1999, before we opened phase one, there were zero,” says Baldwin, who spearheaded the effort to get the center built. He describes the island’s tech sector as “quite significant, and growing.”

Phases two, three and four of the tech center were not scheduled to open until next year, but Kauai’s nascent tech sector is doing so well that most companies have outgrown their current spaces. By late fall of this year, Solypsis Corp., one of the original tenants of the West Kauai Tech Center, is expected to take over phase three, a 25,000-square-foot property in Lihue. Phase two broke ground in May, with an expected completion by the end of this year, and all 12,500 square feet of the property are already spoken for. Tenants will include such companies as Oceanit Laboratories Inc., SAIC, Northrop Grumman Corp. and Digital System Resources. Finally, phase four, which will total about 25,000 to 30,000 square feet in Sports Shinko’s Fashion Landing above the Kauai Marriott Resort and Beach Club, is in due diligence and is scheduled to open in 2003.

“In 1998, science and technology’s impact on Kauai’s economy was somewhere between 3 percent to 5 percent of the economy. When the tech center expansion is completed in 2003, it will be somewhere between 17 percent and 20 percent of the economy,” says Baldwin. “That’s phenomenal growth.”

GROWTH AND DEVELOPMENTS

With more than $200 million in construction permits issued last year, Kauai is still very much in a recovery mode (and an aggressive one, at that), after 1992’s Hurricane Iniki annihilated large chunks of the island.

Evidence of growth and recuperation are scattered throughout the island, including the rebuilding of the Marriott Waiohai Beach Club (a timeshare resort), which was formerly the Waiohai Resort, but has been sitting lifeless since it was ravaged by Iniki 10 years ago. Furthermore, construction of West Kauai’s first major resort, a 220-unit bungalow-style development, Kapalawai Resort, is expected to begin early next year.

Alexander & Baldwin Inc. and Grove Farm Co. Inc. are the top two contenders in the island’s development arena. A&B recently shook things up on Kauai when it announced a joint-venture partnership with DMB Associates Inc. (a privately held Arizona-based real estate development company) that would accelerate the development of Kukui Ula, its 1,045-acre resort project on the southern coast of Kauai.

Grove Farm also is looking to maximize the potential of its 40,000 acres of land, half of which is “nonusable,” or zoned for conservation. The company has placed an emphasis on growing its commercial developments, beginning with a $10- to $12-million renovation of the Kukui Grove Shopping Center. “We want to create a better mousetrap to attract bigger and better tenants to the island, and bring back the local shopper,” says Bill Pratt, commercial retail and investments broker with Honolulu-based Chaney Brooks & Co., which handles all of the commercial real estate for Grove Farm. The company is also working on an extension of its Pua Kea golf course, from the current 10 holes to a complete 18-hole course.

Bill’s father, David Pratt, is president and chief executive officer of Grove Farm Co. Inc. David’s got his hands full trying to juggle all the balls that make up Grove Farm’s entities. He says that although 80 percent of the company’s leasable agriculture land is already currently in use by small-crop diversified-ag farmers and cattle ranchers, he would ideally like to see more high-yield crops on larger acres.

In addition to its commercial and agriculture projects, Grove Farm is looking to expand the series of outdoor ecotours offered on its 18,000-plus acres of conservation land. “Right now, we have ATV tours, bass fishing in our reservoirs and horseback riding, but we’re looking to expand that, particularly in the new area that we purchased from Lihue Plantation,” says David. “Right now we’re looking at doing kayak tours in the ditches up in the Hanamaulu and Wailua section. That’s why tourists keep coming to Kauai, because we have stuff like this.”

Paul Brewbaker, vice president and chief economist for Bank of Hawaii, says there’s much more appeal to Kauai than just ecotours. “All of that is vibrant, but really, everything is just kind of contributing to a nice growth for the island. Flights are picking up, A&B’s Kukui Ula development stands to be a big part of Kauai’s future development, and the island’s got a robust real estate market,” he says. “I don’t think anything is going to slow down the growth, really. Nine-eleven hasn’t really made much of a dent on Kauai to begin with.”

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