Everything Old is New Again

Brian Anderson of Anekona Real Estate Development spills the beans on how he became an “antidevelopment” developer—and a successful one at that

November, 2006

Hawaii’s real estate market was doing fairly well when Brian Anderson decided to sell his Big Island-based home. So rather than reinvest, he downsized to more, well, modest accommodations. “I had a barn out in Waimea where I kept my horses. I built a 600-square-foot apartment in the barn and me and my wife moved there,” he explains. “Of course, she wanted something bigger, so I told her, ‘Be patient, next year we’ll get a house.’”

That was eight years ago. It’s now 2006 and Brian and his wife still live in that 600 square foot apartment in the barn. “I told her when we had time, we’d build another house. I guess we never got around to it.”

Understandably so. Brian, president of Anekona Real Estate Development and son of local politician and businessman D.G. “Andy” Anderson, has been a busy guy. For the past five years, he’s been steadily scooping up resort properties—typically oceanfront, and often in need of a little TLC—at bargain prices and converting them to condominiums. He began in 2001 with the Outrigger Royal Seacliffe in Kailua-Kona, and he’s so far converted, or is in the process of converting, a total of eight properties on three islands.

But don’t let all the building, or even the fact that his company is called Anekona Real Estate Development, fool you. Brian Anderson is not your typical real estate developer. In fact, he doesn’t even fancy himself a “developer” at all, since he favors renovation work over ground-up construction.

“I really don’t consider myself a developer. A few years ago, we made the decision not to add any more density to the state. That’s been our mission statement for the last four or five years now,” he says. “What we like to do is find projects that are already built, renovate them, increase the job base, do some value-added work. … But we don’t want to add to the density. This state is already popping at the seams.”

That sort of antidevelopment sentiment wasn’t always Brian’s philosophy. In the mid- to late 80s, as he began his career, he developed a few subdivisions on the Big Island and Maui, the largest being the 184-lot Wailuku Country Estates. Even now, he does have a small—make that very small—portfolio of four residential lots he’s doing spec homes on in Kona.

But over the years, as his company grew, so did his desire to keep Hawaii, Hawaii. “Look around. There’s too much traffic, too much congestion, not enough infrastructure,” he explains. “When you’ve got traffic in places like Kapaa already backed up an hour and a half, we just can’t contribute to that.”
And so began Brian’s foray into the world of condo hotels. In the ’60s and ’70s, “condotels” were popular with local developers, but when Brian picked up his first property at the turn of the century it was a fairly novel concept to the newest crop of builders. The business model, according to which individual investors purchase hotel units, means developers like Brian get back the bulk of their construction costs early on and still retain ownership (and in some cases, management) of the properties’ common areas and operations.

“When we first started, we had some pretty big successes,” says Cord Anderson, Brian’s son, who, along with his twin brother, Brad, joined the company as project managers after they graduated from Santa Clara University in 2003. “Because back then, we used to buy things really cheap. For example, The Luana Waikiki, we bought that for like $20 million and were able to sell units for $149,000 apiece. So it was a good business to be in.”

Unfortunately for them, others began to think so too. By 2004, Anekona started seeing increased competition for properties it bid on, particularly in the Waikiki area. By 2005, most of the “good deals” were gone and, these days, Brian says, it’s just a plain tough market to be in.

Cord adds: “It’s hard now, because the market is so crowded. The Luana was one of the first condo conversion projects in Waikiki, and since then we’ve seen a lot of activity. The number of projects and developers really hasn’t been that much, but the number of available rooms has gone way up. When Crescent Heights came in [and converted the Ala Moana Hotel], they really flooded the market with over 1,000 units—and that’s a lot.”

The spike in condo conversions was fueled by a strong real estate market and low interest rates nationwide. As smaller investors were squeezed out of the residential and commercial markets, they sought alternative opportunities in which to invest. Places like condotels. And developers were eager to quench their thirsts. In 2005, 9 percent of the 377,000 hotel rooms under development in the U.S. were condotel units, according to research firm Lodging Econometrics.

The extra competition and tight market has slowed Anekona’s roll a little, and the Andersons say, for now, the company will probably back off a little, perhaps even diversifying into other areas, such as retail or commercial real estate. “Let’s face it, there’s only so much fee simple oceanfront property to go around,” says Brian, noting that they paid a pretty high premium for their most recent purchase, $218 million for the Renaissance Ilikai Waikiki Hotel.

But for now, Anekona’s got plenty on its plate. Certainly enough to keep the Andersons and their newest team member (entrepreneur Adam Wong, who joined the company early this year as a project manager and equity partner) busy for at least another year or two. For starters, they’ve got the $40 million redevelopment of the Ilikai, which, when all’s said and done, should transform the property into a hipper, more upscale destination. “We’re going to wash that old-school view of the Ilikai from everyone’s minds and brainwash them with something else,” explains Cord, who’s overseeing the project’s design. “We’re going to step it up and go high end, and just really modern.” Think less Halekulani, more W (which, by the way, is also an Anderson-owned property).

The company’s got equally ambitious plans for its two most recent Kauai purchases, the Aston Kauai Beach Resort and the former Radisson Kauai Beach Resort. Late this fall, after extensive renovations, Anekona rebranded the latter property a Hilton, adding instant name recognition to the 200-plus-unit hotel. On top of that, Anekona hopes to reflag the Aston property as a Doubletree (an upscale chain owned by Hilton), thereby creating brand synergy and an opportunity for overlapping management.

In addition, Anekona also formed a hotel management arm. Brian says, “In the past we’ve sold our front desks to different chains, but with the Hilton and the Ilikai, we’re going to be managing the desks, so that’s new for us too.” He says although managing properties is a little outside of his comfort zone, it will enable him to further his plan to increase local ownership of hotels and resorts.

“My passion now is going to be taking the hotels that we have and developing a different style of ownership. For years now, hotel ownership in Hawaii has been absentee owners, either Japan or Mainland-owned,” says Brian. “The problem with that is the ownership is so focused on bottom line that it becomes an issue. The Hawaii guys, our culture really doesn’t worship money like that. So we’ve got a lot of things in the works that will be new to ownership and will reflect our local culture (see above). So between that and the Ilikai and our other projects, we’re going to be busy for a while.”

Which probably means his wife may be waiting just a few more years for that house.

The Cafeteria KahuWhen Brian Anderson created a property-management division at Anekona, he instantly went from the owner of a development firm with less than two dozen employees, to a hotel manager with a staff of 650. In his own words, here is one way he plans to adjust to his new role.

“We’re going to create a cultural position and we’ll call her the cafeteria kahu. Kahu is like your preacher [or guardian]. Cafeteria is just taking it to the low level. It’s not a managerial position, she’s not a boss. Her business card will probably just say ‘Aunty’ on it.

The theory is, we have HR departments and everyone is worried about what employees do from 8:00 to 5:00. But I think the responsibility of the employer is greater. And that’s the 5:00 to 8:00 position. That’s where the cafeteria kahu comes in. She’ll just be in the cafeteria hearing, talking, supporting and letting us know the moment there’s a problem. She’ll be asking questions like ‘What’s happening in your personal life and how can we support you off premise? What’s happening in the home? Is there financial stress in your life? Has someone passed on?’

We’ll have a line at each hotel where you can call and leave messages. And her job will be to interact with employees and come back and say, ‘Hey management, you screwed up.’ Or, sometimes it’s not a problem. Sometimes it’s to share good news. We had a gentleman who works at [the Hilton] and he just won an award for fostering the most kids. So he needs recognition for that. So it’s just taking care of their general well being. Because that sort of stuff ultimately affects your health, wealth and spirituality. And if you’re an associate of Anekona, those are the three areas we have a responsibility to fulfill.” -JLY

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Jacy L. Youn