Quick Comeback

Returning visitors. Busy realtors. And construction workers everywhere. No wonder Big Island residents are optimistic

November, 2002

A putrid smell permeates the offices of Cyanotech Corp. (Nasdaq: CYAN), an aquaculture company on the Kona side of the Big Island. The odor is hard to describe, sort of a cross between mildew and soil. Gerald Cysewski, president and chief executive officer, apologizes and explains that his employees are doing an annual cleanup of company grounds, which produces the world’s largest market share of astaxanthin, an antioxidant touted for its healing and dietary benefits.

Albeit its global dominance, Cyanotech’s stock price has not been smelling too great. This past summer, it received a de-listing warning letter from Nasdaq for failure to comply with the $1 minimum bid price. In September, the company’s common stock (53 cents per share at the time) was transferred from the Nasdaq National Market System to the $45-billion Nasdaq SmallCap Market.

The company on Oct. 15 announced that private investors purchased $300,000 of common stock, and completed $1.25 million of 10 percent convertible subordinated debentures, due Sept. 4, 2004. The debentures are convertible into shares of common stock of the company at 65 cents per share; the common stock was issued at 40 cents per share. “The feeling on the street was the company was going to go bankrupt, and that was depressing the stock price,” Cysewski says. Proceeds from the convertible debentures replaced $1.238 million in 10 percent convertible debentures that were due at the end of last month.

Going bankrupt is not an option for this mammoth company, whose Big Island farm consists of 69 algae ponds (600 feet long by 50 feet wide) that each hold up to 140,000 gallons of liquid. Cyanotech annually exports more than 400 tons of dry microalgae, of which 170 tons is then repackaged and distributed to 30 countries, including Russia and Japan.

The company now has 270 days to bring its stock price above $1 per share, for 30 consecutive days. Cysewski and Cyanotech investors are confident the company’s financial situation will improve. “We’re going to start making money,” he says.

His optimism seems to reflect the attitude of Big Island residents these days. Sept. 11 last year may have hurt businesses. But the impact was temporary.

The Big Island today is bustling with construction, healthy real estate and a tourism industry on the rebound. “We survived, and the Big Island has continued to prosper,” says Paula Helfrich, president of the Hawaii Island Economic Development Board. “The question today is, ‘Now, what do you want to do? It’s an ideal time for people to be asking that question.”

The visitor industry answered that question early this year, with promotions and gimmicks to bring visitor arrivals back to pre-Sept. 11 levels. At the time of this writing, the resorts, golf courses and retailers on the west side were preparing for the first Big Island Festival, a three-day event showcasing spas, golf courses, agriculture products, music and cuisine. National travel publications, including Food & Wine and Travel & Leisure Golf, were scheduled to participate in the festival, scheduled for Oct. 30 to Nov. 2. Organizers were hoping to lure 2,002 visitors in the year 2002.

Sharon Sakai, administrative director for the Kohala Coast Resort Association, is confident that this festival – as well as other events scheduled between now and the holiday season – would end the year on a high note.

At the time of this writing, Sakai and other members of the resort association were on the U.S. Mainland to promote their properties (eight upscale resorts in Waikoloa, Hualalai, Kona Village, Mauna Kea and Mauna Lani). “We’ve had peaks and valleys, but we’re looking forward to a successful holiday season,” she says. “Next year, business is looking good for the first quarter.”

She and other tourism executives certainly do not want a repeat of this year’s first quarter. In January, there were 95,196 total visitor arrivals, a 9 percent drop from January 2001. It was enough to concern the visitor industry, which closely monitored visitor arrivals for the first six months of this year. By June, year-to-date arrivals were down only 4.5 percent, compared with the previous year. And by August, arrivals were back up to pre-Sept. 11 levels: 118,063 visitors, a slight (0.1 percent) increase from August 2001. “We started coming back from Sept. 11 very quickly. And the wealthy demographic that (Big Island visitors) are, they were not hit as hard,” Helfrich says.

Some of the tourism rebound was from passengers aboard cruise ships, particularly the Norwegian Star, which began weekly services to the Big Island this year. Between January and June, a total of 110,897 cruise-ship passengers visited the Big Island. Fifty-six percent were from the East Coast on the U.S. Mainland; about 31.3 percent were from the U.S. West Coast; and 5.8 percent were from Canada. George Applegate, executive director of the Big Island Visitors Bureau, says it’s not necessarily the cruise-ship arrivals, but the follow-up visits that make a difference. “Roughly 55 to 60 percent of cruise passengers, when questioned, indicated they will return to enjoy a land-based vacation if they liked the destination,” he says. “The experience these cruise passengers have here is important. It’ll encourage them to come back.” He stresses the importance of travel agents, who will help bring these visitors back to the Big Island again and again.

Tourism’s rebound aside, the bright spot for the Big Island, really, is real estate. “The industry is bursting at the seams,” says Jackie Parkinson, executive officer of the Kona Board of Realtors, an organization that oversees real estate activity for the west side of the island.

Last year, the board represented 350 agents. This year, that number has shot up to 425 and will continue to grow. “Every month, we have orientation, and we’ve been experiencing between 15 to 20 people per month,” Parkinson says. The majority of these people are former real-estate agents who are renewing their licenses, because they have “seen the market and want to come back,” she says. There are not enough homes to fill demand, and developers are rushing to fill the market with newly built neighborhoods.

The scope of these new residential units is vast, ranging from multimillion-dollar estates to single-family homes. Take for example, Pualani Estates at Kona, a residential development with units starting as low as $200,000. Last September, the first 15 houses at Pualani Estates were bought, immediately after its developer, Schuler Homes, announced the units for sale. A total of 260 homes will be built at Pualani over the next few years. Meanwhile, the first 15 will be ready for occupancy by the third quarter of 2003. Schuler Homes also is developing Lualai at Parker Ranch, a single-family residential community located in Waimea. It will consist of 322 three- to four-bedroom homes starting in the low $200,000s. All 18 lots – part of the first phase of construction – were snapped up on the first day of sale in August.

Also scheduled to be built in the Waimea area is HoloHolo Ku, a community of 44 ranch-style homes on eight acres of former Parker Ranch land. The project is a joint venture between A&B Properties Inc. and local developer U.J. (Rick) Rainalter Jr. The exclusive community will include amenities, such as concierge services and a gym and sauna for its residences.

No doubt one of the most exclusive residential communities on the Big Island, is Hokulia, a golf-course resort-style community on 1,550 acres south of Kailua-Kona. A Lyle Anderson Inc. development, Hokulia is comprised of one-acre lots, valued between $1 million and $3 million. Each landowner is responsible for building his own home, as long as the structure meets Hokulia standards.

At the time of this writing, 192 lots were sold. “The majority of these buyers are Mainlanders who already have a presence on the Big Island,” says Alan Gambill, sales executive for the project. Only Hokulia members will have access to the 18-hole golf course. But the general public will be allowed to play in fund-raising tournaments on a designated day of the month. It’s a way for the members-only community to be a part of the community. Hokulia also has an agreement with the county to build a bypass road from Keauhou to Napoopoo Junction – at Hokulia’s expense. Certificates of occupancy for new homes will not be issued until the six-mile road is built. “We’re building the road so that we do not add additional traffic to the highway,” Gambill says.

The Big Island’s construction boom has had a positive ripple effect on local companies, such as HPM Building Supply. So much so, that the company’s President and Chief Executive Officer Michael Fujimoto anticipates a 5 percent, if not more, increase in gross annual sales this year. “There’s a phenomenon that’s occurring,” Fujimoto says. “Luxury resorts got the momentum going five years ago, and we’ve also been fortunate to supply materials to condos and single-family homes.”

The Hilo-based company has 350 employees and full-service stores in Hilo, Kona and Waimea. Manufacturing and distribution facilities are in Keaau, and a metal-roofing branch is located on Oahu.

Fujimoto knows his family-owned operation soon will face tough competition from big-box retailers Home Depot Inc. and Lowe’s Home Improvement Warehouse. Home Depot announced plans to open a Kona store in November and is looking at a location in Hilo. Lowe’s is scheduled to open a Kona store next year. “We’re not the first community in the nation to be hit with a Depot and Lowe’s,” Fujimoto says. “As long as we meet the needs of our commercial builders, the government and industrial customers, we’ll be okay – we’re confident that we’ll be around.”

After all, HPM has been serving Big Island residents for more than 80 years. “A lot of businesses have survived and have focused on doing what they do well,” Fujimoto says. It’s an optimistic attitude that seems to be the theme on the Big Island, lately.

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Cathy S. Cruz