Makeovers of a Lifetime

New building projects in Waikiki run the gamut, from senior residential communities to ritzy retail outlets

June, 2003

Waikiki’s spirit is calling, and money is washing up on those sandy shores. U.S. Pacific Construction, a closely held Honolulu builder, is gearing up to convert the old Outrigger Hobron Hotel into a senior living facility. The cost: $20 million. The estimated completion date: early 2004.The job comes hard on the heels of U.S. Pacific’s most recent job in Waikiki, a $27 million renovation of the Renaissance Ilikai Hotel, completed in early 2002. “There are an awful lot of possibilities in Waikiki,” says Hugh Brown, vice president in charge of operations for U.S. Pacific. “There is a market there, and we would like to be part of it.”

So would lots of other folks. The pipeline for multimillion-dollar projects in Waikiki has gone from empty five years ago to positively gushing in 2002 and 2003. Since 2001, construction and renovation projects in Waikiki totaling nearly $1 billion have been completed or announced. That’s only the beginning, say many Waikiki-watchers. After decades of decay, a kind of positive domino effect seems under way in Hawaii’s most important resort destination. The city and county of Honolulu set this process in motion with its well-received renovation of the Kalakaua Avenue promenade. Hotels began to respond with plans for their own renovations. Then a host of magazine articles in the national media heralded a revived Waikiki.

When the big chains jumped in with both feet, the situation became a case of keeping up with the Jones’. Sheraton Hotels & Resorts, Hilton Hotel Corp. and Marriott International all announced major Waikiki renovation projects in 2000 and 2001.

Case in point: When Marriott renovated its Waikiki Beach property on the Diamond Head side of Kalakaua, Aston Hotels and its parent company, ResortQuest International, quickly followed suit with edgy and eye-catching renovations of its beachfront property located right next to the Marriott. As a result, room rates at both hotels have soared, while occupancy has been comparatively strong. “You need to pay to play and continue to hold your market share, or someone else is going to come in and renovate next to you and take your customers,” says Stan Brown, Marriott International’s vice president for the Pacific Islands.

Beyond the big renovations, hoteliers are scrambling to perform smaller jobs to maintain appearances. Most of these are only in the millions or tens of millions, such as renovations at the Aston Parkside or upgrades at the Radisson Prince Kuhio. All told, they add up to many millions more for construction firms plying the Waikiki strip. Insiders say it’s still early, but projects are really humming along.

According to Andrew Friedlander, chief executive officer of Colliers Monroe Friedlander, a retail transition is about to take place along Kalakaua. A handful of smaller properties are changing hands, with new owners hoping to ride the coattails of 2100 Kalakaua and the coming massive redevelopment of Lewers Street by Outrigger.

Says Marriott’s Brown, “As you see the bigger projects happen, there is a trickle-down effect. The moderate properties also invest and freshen their products, or they wind up losing out.”

Waikiki Construction: $941 Million
Waikiki Beach Marriott Resort Dick Pacific $60 million, renovation November 2002
Renaissance Ilikai Waikiki Hotel U.S. Pacific. $27 million, renovation March 2002
Fee-simple, luxury condominium/A&B Properties Inc. To be disclosed $30 million, new construction First quarter 2005
2100 Kalakaua Ave. Honu Group Hawaiian Dredging $140 million, new construction December 2002
Aston Waikiki Beach Hotel Charles Pankow Builders $30 million, renovation November 2002
Waikiki Beach Walk TBA $95 million, new construction 2005 (phase I) 2010 (phase II)
Hilton Hawaiian Village, time-share tower TBA $85 million new construction (reported, but company would not confirm) TBA
Hilton Hawaiian Village, Kalia Tower Hawaiian Dredging $95 million, new construction September 2001
Ohana Waikiki Hobron, senior living facility U.S. Pacific $20 million, renovation February 2004
Hilton Hawaiian Village, Lagoon Tower Hawaiian Dredging $36 million, renovation January 2001
DFS Galleria Albert C. Kobayashi $65 million, new construction February 2001
Sheraton Waikiki Not confirmed $45 million, renovation (reported, but company would not confirm) Not confirmed

There are even hopes that a wholesale turnaround could reach beyond the beach and onto the far less tony Kuhio Avenue corridor. Honu Group will build its second phase facing Kuhio, as an enclave of small shops and eateries twinned with ultra-posh retail townhouses. Alexander & Baldwin’s condominium project on Kuhio also contains plans for the later edition of a new retail frontage across from Honu Group’s second phase.

“We saw this as a good investment opportunity, being the largest vacant-zoned property in Waikiki,” says Rick Stack of A&B. He is managing the still-unnamed project. As upper Kuhio changes character, say Waikiki insiders, pressure will build on property owners to upgrade, particularly those located closer to Kapahulu Avenue. That, or they will lose out on future growth.

Of course, big obstacles remain in Waikiki. Sewage capacity and crowding issues continue to limit new construction. Many owners remain trapped in aging and unattractive buildings, because zoning regulations prevent them from ripping them out and replacing them with newer, attractive ones while maintaining the same room density. A handful of Japanese owners are still hanging on in Waikiki, but with their loans upside down, they will probably never put serious money into their properties.

Local residents have vocally opposed some of the new projects, such as Hilton Hawaiian Village’s proposal to build a time-share tower on the old Tahitian Lanai site. Finally, leasehold remains a thorny issue, deterring many investors from seriously upgrading properties that might have to be torn down in a decade or two.

Still, Friedlander, Brown and others say the ball is rolling downhill now in Waikiki, and construction companies can look forward to a steady stream of work on this sandy stretch. Says Friedlander, “I think we are in the embryo stage right now. So much more needs to be done.”

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