Experts see
bargains amid isles’
real estate

Homes are considered good
buys but demand is weak for
industrial space and retailers

By Jerry Tune
Star-Bulletin

In Hawaii's current real estate market, home buyers and investors have the best opportunities in 20 years, but small businesses looking for industrial space and retailers continue to struggle.

That's the way a panel of experts looked at the question "Are we in a real estate recovery?" during a Hawaii Developers Council seminar yesterday at the Ala Moana Hotel.

Homeowners paying the current Oahu median price of $290,000, with a 20 percent downpayment, can move in for $1,500 a month but nine years ago the same buyer paid $2,500 a month when the median was $355,000, said Mike Sklarz, director of research at Prudential Locations.

"That payment (of $1,500) is about what it was 20 years ago," Sklarz said. In 1981, the payment was $1,700 a month when interest rates averaged 16.5 percent. Today rates typically are 7.5 percent.

"The market is in a sustainable recovery," he said.

Paul Brewbaker, chief economist at Bank of Hawaii, agreed and called it "a slow recovery, but a gradual accelerating recovery."

He said real estate prices could firm up in the next six to 12 months, led by the East Oahu and Windward Oahu markets. "I hope you bought something this year or you may regret it in a year or so," Brewbaker added.

While residential resales are up throughout the state, other segments of real estate are more complex and the future is uncertain.

Retail: Jon-Eric Greene, senior vice president and rental division manager, Colliers Monroe & Friedlander Inc., said retail leasing had been robust but "we've seen it wane in the last 18 months."

He is marketing big-box space but "can't find any takers" and many shopping centers have cut space rates. At the quality shopping centers, rates have dropped 25 percent over the past three years, and the lesser centers have dropped rates more than 50 percent in some cases, Greene said. Shopping centers that have been successful, such as Victoria Ward Centers in Kakaako, are doing it more by improving the tenant mix.

Industrial: Mark Ambard, principal broker and president, Ambard & Co., said there is a need for smaller warehouse spaces but you can't find them. "This is the market which comes first (to create a healthy industrial economy)," he said.

At the same time, Ambard said he believes fee-simple industrial prices are about 50 percent too high and the leasehold system "is dead" because terms are not viable and banks don't want to lend on leasehold. "There are a lot of one-year deals," Ambard said. "Tenants are betting rents are going down. I'm betting rents will stay the same and gradually go up."

Office: Joseph Haas, senior associate of the office division for CB Richard Ellis Inc., said there is enough demand so that new downtown office space will be needed by 2001 but nothing is being planned right now. He also sees demand in other areas. "By 2001, it will be a landlord's market islandwide," Haas said.

Investment: Scott Gomes, vice president and director of the Asia Pacific Advisory Group, CB Richard Ellis Inc., said he doesn't think the leasehold system is dead. "I'm optimistic that it can work out," he said. But, for that to happen, Gomes said he believes fixed terms need to be a minimum of 30 years.

He sees "a lot of confidence from investors," primarily from the mainland.

In the past 18 months, there have been 11 hotel sales, four downtown office sales, six properties sold on Kapiolani Boulevard and three apartment buildings traded. "The market is OK, not great, but OK," he said.