Hawaii real estate paradise returns with Goldman loan

, Bloomberg


Hawaii, buffeted in the aftermath of the U.S. recession and Japan's tsunami, is benefiting from a travel rebound that's sent tourism revenue to a record and spurred real estate investments across the islands.

Goldman Sachs Group Inc. last month announced a $1.85 billion loan for a once-distressed hotel portfolio that has five Hawaiian properties, including the Sheraton Waikiki and the Westin Moana Surfrider in Honolulu. Companies from Walt Disney Co. to Starwood Hotels & Resorts Worldwide Inc. are expanding resorts. On the Big Island, the first new residential development in at least five years is starting construction.

Property investors and lenders are seeking to take advantage of increased demand from affluent Asian travelers and visitors from Northern California enriched by the technology- industry boom, according to Honolulu-based Hospitality Advisors LLC, an industry consulting firm. Oahu, which attracts the most visitors of Hawaii's eight major islands, has the highest hotel occupancy among the top 25 U.S. markets, research firm STR said.

"What's driving Hawaii now, particularly Oahu, is the resurgence of the Japanese market — there was a lot of pent-up demand after the tsunami — and substantial growth in Chinese and Korean numbers because of the increase in wealth in those regions," said Joseph Toy, president of Hospitality Advisors.

Lodging and tourist-industry revenue, including room rentals and food and retail sales, rose 15 percent to a record $3.62 billion this year through Sept. 30, according to Hospitality Advisors. That compared with a low of $2.59 billion in the first nine months of 2009, when the U.S. was in a recession after the credit crisis.

Japan Tsunami

Travel was also reduced by the March 2011 Japanese earthquake and tsunami that killed thousands of people and led to the worst nuclear crisis since Chernobyl, according to Hawaii's tourism board. Mary MacNeill, managing director at Fitch Ratings, predicted at the time that the disaster would set back a recovery by one to two years.

"Tourism bounced back sooner than expected," she said in an e-mail last week. "The Japanese tourism decline was not as great as originally expected. In addition, other markets, particularly China and Korea, had a large increase in travel to Hawaii."

The average property value for Oahu hotels probably will climb 24 percent to $547,764 a room by 2015, according to HVS and STR, developers of an index that tracks supply and demand, profit and loss forecasts, and investment yields. Oahu's projected per-room value is the second-highest among 65 major U.S. markets, after New York City, the firms said.

Strong Comeback

"This market has come back so strongly after the downturn," Suzanne Mellen, a San Francisco-based senior managing director at hospitality-consulting firm HVS, said in a telephone interview. The firm conducted appraisals of the hotels for the Goldman Sachs financing.

That deal involved hotels owned by private-equity firm Cerberus Capital Management LP and known as the Kyo-ya portfolio in the commercial-mortgage backed security market. The loan backed by the properties was sent to special servicing in April 2011 after the hotels' value dropped. Special servicers negotiate with landlords on behalf of bondholders and decide whether to modify a loan or foreclose.

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