DENNIS ODA / DODA@STARBULLETIN.COM The former Ohana Surf Hotel on Kuhio Avenue has been converted into a dorm for college students, now called the Ohia Student Suites. Honolulu Community College student Ashley Espiritu, left, and Hawaii Pacific University students Ashley Lindberg and Drake Gammill are pictured in one of the typical rooms for two.

Savio finds profit in dorms

The real estate developer estimates he's making $100 a bed renting dorms to students

When developer Peter Savio first put his son in a student dorm at Santa Clara University in California -- at $900 per month -- a light went off in his head.

His real estate brain began churning.

"After that, I started thinking of dorms," he said. "I started talking to investors and I thought, there's no one doing private dorms here, and there seems to be a need for it."

Two were converted from hotel properties, and one is a former apartment building. Savio says he's planning to invest in one more Waikiki property.

Savio's Hawaiian Island Homes Ltd. is targeting students from local private universities, as well as the University of Hawaii at Manoa and community colleges.

All three of the dorms -- Hana Student Suites, Kalo Terrace Suites, and Ohia Student Suites -- are managed by Texas-based Century Campus House Management.

Last year, the properties were 90 percent to 95 percent full, and he's expecting the same occupancy this year. The problem is that most of the students living in the dorms are from the mainland.

That's why Savio is trying to give local kids an extra incentive.

"Part of it, is, it's expensive to live in a dorm," he said. "Parents see it as an expense. Part of what they miss is (that) the dorm is one of the best educational experiences."

As an incentive to fill up the dorm rooms, Savio is setting aside 100 beds for a "kamaaina dorm scholarship" -- at $300 per month from September to May, half the usual rates.

Savio says he'll foot the remaining costs.

DENNIS ODA / DODA@STARBULLETIN.COM After initially planning to turn the former Ohana Surf Hotel into condominium units, Honolulu developer Peter Savio shifted to student housing and turned it into the Ohio Student Suites. Genela Manuel, one of the resident assistants at Ohia, stands next to her self-portrait.

"This is targeting the kids who were not intending to live in dorms," Savio said. "We want to entice them to try the experience, so that local parents will start thinking (that) putting our kids in the dorm is a good idea. To me, there's a lot to be learned from the dorm experience."

Savio says he's personally taking a $270,000 loss by making the offer. He thinks it might even help reduce Oahu's traffic problems, by keeping students closer to campuses.

Making a profit

But he's also in the private dorm business to make a profit.

Prices at the existing dorms in Hawaiian Island Student Suites range from $675 to $900 monthly per bed. Single suites rent for $1,200 per month.

In dormspeak, it's all about the number of beds you have rather than the number of units. Savio estimates he's making a margin of about $100 per bed, when all the expenses are accounted for.

He is making up to 20 percent more running the buildings as dorms, he said, than as straight rental units.

Mark Storfer, a Realtor associate at Choi International, said he thinks it's a brilliant idea.

"It generates more revenue per square foot than a straight rental would," he said. "It's a win-win except for the renters in Waikiki."

Property owners are beginning to consider dorms as one of their options.

But Savio also says managing college student residents comes with higher liability and staffing costs.

Besides a house director and resident assistants, there's 24-hour security, not to mention high cleaning and maintenance costs, empty summer months and high-speed Internet wiring for each building.

Dorm furniture, while not as fancy as in upscale condotel units, still adds to the cost, he said. He expects to pay more than double his current fees for cleaning and maintenance in the next few years

"Kids are tough on the TVs, the furniture, the carpets and elevators," he said. "They're not the cleanest and neatest age group. You have to have supervision all the time."

Savio can recount a few incidents -- like when students were jumping from the lanai railing into the swimming pool. Another time, there was a BB-gun fight.

"On the whole, there were no serious problems," he said. "The kids are better behaved than I thought."

From hotel to dorm

The largest property Savio runs as a private dorm, so far, is the 250-room Ohia Student Suites at 2280 Kuhio Ave., formerly the Ohana Surf Hotel.

The units were in the rental market -- at $900 per month for a studio unit -- for two years before Savio decided to transform the Ohia into a dorm. As it turned out, he said, the majority of rental tenants were college students.

His original intentions were to convert the hotel to condominium units, but landowner Queen Emma Foundation did not permit it.

The dorm rooms are small, and furniture spare -- just simple twin-sized beds with drawers and small desks. At Hana Student Suites, two to three students can share a studio measuring about 228 square feet.

But compared to the rest of the rental market, $600 for a bed might not be so bad.

Jerry Bangerter of Re/Max Kai Lani says few students apply for his rental units, which begin at $1,000 per month -- more than most students could afford.

"When I have students, they have the tendency to share," he said. "And frankly, at the lower end, I think there's a scarcity of good-quality units on the island."

For Farley Rossiter, a Hawaii Pacific University student from Puerto Rico, the dorms work out just fine -- he has a bed, a desk, coin-operated laundry -- and he likes being surrounded by other students. Plus, he can go surfing in Waikiki.

Another HPU student from Australia, Tina Li, said the dorms worked for her because she needed a short-term rental since she's only here for a semester.

Savio said building a brand-new dorm wouldn't pencil out because of the costs of construction. "You couldn't do it," he said. "It's too expensive. You have to find older buildings and convert them."

Originally, Savio was planning to shell out $3 million for Puck's Alley, which he was eyeing for dorms. But Kamehameha Schools bought it this summer and is still weighing its options.

Savio instead has the lease rights to three walk-ups on Coolidge Street with about 50 units. He plans to convert them to dorms down the line, but says he's now mostly focused on the purchase of a building in Waikiki that could offer up to 500 beds.

He expects to sign a contract within the next month.

Savio says his goal is to put 1,000 more beds into the private dorm market by the end of next year. The ventures are profitable, he said, or else he wouldn't be doing this.

"But I also have extra expenses," he said. "After one or two years, come back and ask us how much we're making."