Credit ills plague isle real estate
Sales of commercial real estate plunge
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The nationwide credit crunch has taken a toll on Hawaii's commercial real estate sector, which saw sales volume plunge 58.5 percent in the first half of the year, according to a new report.
Local real estate deals, affected by more stringent lending requirements and a disconnect in pricing between buyers and sellers, fell only 7.3 percent from 113 transactions in the first six months of 2007. But year-to-date sales volume plummeted to $536 million from $1.2 billion, according to the latest investment market report released today by Colliers Monroe Friedlander Inc.
Large deals over $25 million were affected the most by the credit crunch with major hotels, shopping centers and office building sales falling to levels not seen since the late 1990s, before the state's latest economic boom.
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Hawaii's commercial real estate sales volume plunged 58.5 percent in the first half of the year, following the severe downturn in the U.S. market, according to a new report.
The number of local real estate deals, affected by more stringent lending requirements and a disconnect in pricing between buyers and sellers, fell only 7.3 percent from 113 transactions in the first six months of 2007, according to the latest investment market report released today by Colliers Monroe Friedlander Inc.
But year-to-date sales volume plummeted to $536 million from $1.2 billion in the first half of 2007, with the greatest declines in high-priced hotel and retail deals, which saw sales volume drop by 87.5 percent and 76.6 percent, respectively.
Large deals over $25 million were affected the most by the credit crunch with major hotels, shopping centers and office building sales falling to levels not seen since the late 1990s before the state's latest economic boom, according to the report.
While Hawaii's residential real estate market has not been as substantially affected as the mainland by the credit crunch and subprime mortgage troubles, investment funds have lost significantly in mortgage-backed securities and have curtailed acquisitions in Hawaii and on the mainland, said Mike Hamasu, Colliers' director of consulting and research.
"The large transactions are not occurring; you have a whole bunch of sales prices that are small in comparison to last year," he said.
Last year's transactions included the $575 million purchase of the Makena Resort on Maui by the Dowling Co. and Morgan Stanley Real Estate, the $85 million sale of the Pacific Park Plaza in Honolulu and the more than $50 million acquisition of the former Gold Bond building in Kakaako.
The average hotel sales price has fallen a staggering 75 percent to $21.6 million from $86.3 million last year, while the sales price for retail properties dropped to $2.5 million from $9.9 million.
The market has reversed itself from last year's period of abundant capital with no money down to 25 percent to 50 percent equity requirements. This has resulted in other major deals being re-traded or pulled off the market altogether.
The mainland owners of ResortQuest's flagship Waikiki hotel pulled the property off the market earlier this year, as did the California owners of the Hotel Hana-Maui and Honua Spa and Fairmont Orchid Hawaii hotel on the Big Island.
"Even for solid investment opportunities based on strong supportable income factors, financing is difficult to secure," the report said.
However, sales remain strong for properties priced below $5 million, the buyers of which have an easier time securing financing through local banks. These properties - industrial condominiums, land sales and smaller apartment buildings - comprise more than 70 percent of the total number of transactions.
The commercial real estate market is not expected to rebound in the near future until major investment firms identify the magnitude of losses and other financing sources become aggressive on lending, Hamasu said.
"Hawaii is unique in many other factors, but in this particular situation you have significant similarities with other markets in the country," he said. "One of the contributing factors for the downturn in the economy is this situation on Wall Street. Until that, plus other factors, get corrected, we're not going to see a turnaround."
For the year, transaction volume is anticipated to drop by 50 percent to 60 percent as more owners wait for alternative financing in the capital markets. Sales volume in Hawaii is anticipated to total $1.3 billion to $1.6 billion, a 50 percent decline from last year's total of $3.04 billion.