Towering Infernos

Kakaako High-Rises Are Hot. How Long Will It Last?

June, 2004

Barbara Hoy and her husband recently put a down payment on their retirement home. With plenty of shopping, recreational and entertainment venues just a short walk away, the Manoa interior designer says that her new neighborhood is reminiscent of Manhattan, where she and her husband briefly lived. Miami Beach? San Francisco? Seattle? Nope, try Kakaako.

In several years, Hoy hopes to be moving into her high-rise condominium in the Moana Pacific, a two-tower, 706-unit development on the corner of Piikoi Street and Kapiolani Boulevard. The towers, each 400 feet tall, will have commanding views of Waikiki and Honolulu Harbor, and will be equidistant from retail juggernaut Ala Moana Shopping Center and its up-and-coming shopping sister, the Victoria Ward Centers.

“We wanted to experience city living again, but we didn’t want to live in Waikiki,” says Hoy. “The Moana Pacific is within walking distance of my husband’s office and Ala Moana Beach Park, where he often runs after work. It will be right in the middle of all this activity.”

A lot of other buyers, both local and overseas, agree with Hoy. Eight days before opening, people began camping outside of the Moana Pacific’s sales-office doors. In the first four hours after opening, the sales staff sold 95 units. During the next phase, they sold another 120 condos in two days.

These eye-popping numbers have been repeated in the sales offices of the other three high-rise condominium developments in the area: The ultra-luxury Hokua was virtually sold out when the project broke ground in early 2003. As of mid-April, the Koolani, another posh property, had sold 140 of the 150 units released. During the first day of its unadvertised second release, buyers scooped up seven units. But high-end buyers aren’t the only ones on a shopping spree. The moderately priced 909 Kapiolani, on the corner of Ward Avenue and Kapiolani Boulevard, sold nearly all of the 113 units in its first release. Condos at 909 Kapiolani start as low as $260,000.

“The competition is fierce. In my opinion, there is some overlap, but there are some nice segregations, too,” says Ricky Cassiday, an independent real estate analyst. “Each project seems to be offering a different product at a different price point, so they aren’t necessarily tripping over one another at this point.”

According to Cassiday, an alignment of the real estate planets has led to the extremely strong sales, particularly among local buyers: historically low interest rates coupled with a strong local economy, multiplied by pent-up demand and an exceptionally tight single-family home market on the Island. The wild card in the equation is the development of the Victoria Ward Centers, which has become the city’s new entertainment hub.

More than 80 percent of Hokua’s owners are local residents. They also make up approximately 70 percent of Koolani’s buyers. Doug Shanefield, Moana Pacific’s sales manager, estimates that his development has a 50/50 split between overseas and local buyers.

“The Victoria Ward development had a lot to do with the success of this project. We’ve made it an important part of our marketing,” says Shanefield. “Our residents have an exciting shopping village that they can walk to. I also think so many local folks are familiar with the property and the area. Who hasn’t driven by this corner?”

“The pace of sales didn’t surprise me as much as the fact that so many of our buyers are local,” says Penny Bradley, sales manager at Koolani. “Not only are they local, but they are going to live here. Generally, in condo sales, you get a higher percentage of investors. But our buyers recognize the value of the building and the quality location and want to make Koolani their home.”

Cassiday says that what is happening in Kakaako is similar to the furious build-out of East Honolulu’s Hawaii Kai in recent years: Islanders are looking to move closer to the core of the city and are willing to pay for the convenience. However, once these high-rises are completed and occupied, Cassiday believes that Oahu’s hyperactive single-family home market will be breathing easier.

“The day when these buildings notify their buyers that they can move in, is the day Honolulu’s single-family home inventory gets some relief,” says Cassiday. “I fully expect that a bunch of homes will go up for sale in Waialae Kahala, Hawaii Kai, Makiki and Manoa. When this happens, it will be good for us all.”

How long will this Kakaako inferno last? Cassiday believes that the four current projects will be able to meet the market’s demands. However, the future of forthcoming developments in the area (and there will be others) will be uncertain. He says other projects will be “playing in someone else’s sandbox.”

Bradley is also optimistic, pointing to several factors

in Hawaii’s favor: a sunny 10-year economic outlook, a high acceptance of condominium living among Island buyers and a steady stream of visitors, who are looking for second homes.

However, Jeff Dinsmore, general manager of Victoria Ward, thinks that the sales boom may not last very long at all, even though he remains very bullish on the area.

“The market in Honolulu is so thin. How many condominiums over the last decade didn’t make money or didn’t go up?” asks Dinsmore. “It’s nice to know that Victoria Ward has become a big selling point for these projects. But we’re really more focused on the development of the University of Hawaii Medical School and adjoining properties. Entertainment and shopping are great for the area. But the creation of jobs will be the real engine for Kakaako. If there’s work in the area, people will want to shop, entertain and live in the area.”

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David K. Choo