Hawaii's lead hospitality industry could begin to rebound this summer; however, recovery could take five years, speakers said at an annual Visitor Industry Leaders briefing.

While Hawaii's hospitality sector has outpaced competitors during the downturn, its overall performance is “;almost too embarrassing to talk about,”; said Joseph Toy, president and chief executive officer of Hospitality Advisors LLC.

“;We lost $2.6 billion from 2008 through September of 2009,”; Toy said at the event held yesterday at the Halekulani Hotel.

And while the luxury market, which typically leads an up cycle, has begun to see more volume, it still has a way to go, he said.

“;We'll see a seasonal bump in the first quarter of 2010, but it will fall short of the peak years,”; Toy said. “;Summer is the earliest opportunity for improvement.”;

He said real recovery, which will occur when this cycle overtakes 2007's peak, probably will not happen before 2014.

“;The consumers are back. That wasn't all Cash for Clunkers,”; said Paul Brewbaker, principle of Honolulu-based TZ Economics. “;But long-haul leisure travel is at the end of the list.”;

Next year, barring an unforeseen spike in oil prices or catastrophe, Hawaii will see gradual growth in travel demand, Brewbaker said. But “;we should be so lucky to get back to where we started,”; he said.

Hawaii's commercial and investment property segment also has been hit hard by the hospitality sector downturn, said Michael C. Wierwille, managing director of Los Angeles-based Duff & Phelps LLC.

“;At a time when revenues have dropped, there has been a real decrease in the value of these businesses,”; Wierwille said.

In Hawaii, Toy said lenders have taken back the Ilikai, W Hotel, Kauai Hilton, Aloha Beach, Sheraton Keauhou and Fairmont Orchid. He said Aston Kauai Beach, the Maui Prince and the Turtle Bay Resort are in receivership, and the Ritz Carlton Kapalua and Grand Wailea have defaulted.

Hawaii's loan defaults have hit $1.6 billion and will keep accelerating, Toy said.

It's hard to refinance when assets are worth less than their loan balances, banks are not lending and equity/mezzanine lenders are absent, Wierwille said.

That said, the peaking of distressed property sales in the third quarter of 2009 is a sign that the U.S. market has begun to move, said David K. Baldwin Jr., a managing director at Duff & Phelps.

There was $4.3 billion in commercial sales in August, the biggest month since 2007, Baldwin said.

Owners are trying to service debt; lenders are easing burdens by extending loans, restructuring leases, reducing rents and offering concessions, Baldwin said.

“;However, there is still a backlog (of bad loans) that hasn't gone through the system,”; Baldwin said, adding that resolved loans must outnumber troubled ones before recovery occurs.

The good news is that investors are poised to take responsibility, he said.

“;It's a wonderful time to buy,”; Wierwille said. “;Japan and China are putting pools of investors together.”;

The weak U.S. dollar also could drive off shore business and travel deals, Brewbaker said.

While Hawaii has gotten hammered, there will be a lot of capital flying in sometime after 2012, Wierwille said.