The coming condo boom?
The promise of an improved economy is driving plans for six — maybe seven — new residential towers
By Andrew Gomes
POSTED: 01:30 a.m. HST, Feb 26, 2012
UP AND COMING
As many as seven residential towers on six sites have been unveiled or are in the works within Honolulu’s urban core, which was ground zero for high-rise condo development during the last market boom in the early 2000s.
IN THE PACK
>> Location: 605 Kapiolani Blvd.
>> Status: Developer Franco Mola has an option to buy the property and is exploring plans for two condo towers on the site of the former Honolulu Advertiser, but has not filed an application with the state authority governing high-rise development in the area.
>> Location: 1189 Waimanu St.
>> Status: Alexander & Baldwin Inc. launched sales efforts in December. The 340-unit tower called Waihonua could break ground later this year on the undeveloped site between existing Hawaiki and Koolani towers.
>> Location: 1555 Kapiolani Blvd.
>> Status: Local developers MacNaughton Group and Kobayashi Group are working with a Texas company that owns the rights to build a 210-unit condo tower on top of the Nordstrom parking garage at Ala Moana Center. Sales efforts are slated to begin before the holiday season.
>> Location: 850 Kapiolani Blvd.
>> Status: San Diego development firm OliverMcMillan and local landowner Joe Nicolai submitted a permit application recently for a 400-unit tower called Symphony on this undeveloped site Ewa of Blaisdell Center. Construction could begin by the end of the year.
>> Location: 2121 Kuhio Ave.
>> Status: A California development firm recently bought this parcel. The site is on the Diamond Head-makai corner of Kuhio Avenue and Kalaimoku Street.
>> Location: 604 Ala Moana Blvd.
>> Status: Alexander & Baldwin Inc. has an option to buy this site formerly occupied by CompUSA. The company envisions building a tower here after it finishes another one on Waimanu Street slated to break ground by the end of this year.
There’s a vibe in the local development community that Hawaii’s next real estate boom could be right around the corner.
If that’s correct, right about now would be the time to start announcing condominium tower projects that take a couple years to build.
Some industry observers question the breadth and depth of the next market expansion, and expect only a few of the projects being lined up now will come out of the ground.
“I think there’s a market as the recovery unfolds … but it’s not going to be like the last (boom) cycle,” said local real estate market analyst Ricky Cassiday. “You won’t get the right conditions again.”
If the window for developing the next crop of Honolulu condo towers is relatively small, it becomes crucial to be among an initial few to hit the market. This pressure could be driving present activity of developers jostling to get a jump on the market and pull off the high-risk endeavor of high-rise development.
“It does look like everybody’s jamming — trying to get through the door at one time,” Cassiday said.
The early starter is a 340-unit tower in Kakaako called Waihonua announced by local development firm Alexander & Baldwin Inc. in November. A&B began accepting nonbinding reservations from prospective buyers in December, and has collected about 190 such expressions of interest for units priced between $375,000 and $1.9 million.
“We’re encouraged by the positive response we’re seeing,” Chris Benjamin, head of A&B’s real estate division, said in a conference call with stock market analysts earlier this month.
Construction on Waihonua should start later this year if a “satisfactory” number of binding sales contracts are signed, A&B said. Converting reservations to contracts is scheduled to start next month, and will provide a better idea of buyer demand, given that some people don’t convert reservations to contracts with nonrefundable deposits.
Close behind Waihonua is a project called Symphony, also in Kakaako just Ewa of Neal Blaisdell Center. This project’s developer, a partnership between San Diego firm OliverMcMillan and local landowner and car dealer Joe Nicolai of JN Automotive, filed an application recently seeking state approval for the 400-unit luxury tower.
If Symphony is OK’d, sales could begin in late summer, followed by construction before the end of the year if there is enough interest from buyers, according to Dan Nishikawa, OliverMcMillan’s development director.
A third project that hasn’t previously announced a timetable is a 210-unit tower on top of the Nordstrom parking garage at Ala Moana Center. Jeff Arce, a principal with local development firm The MacNaughton Group co-developing the tower, said sales efforts are being readied for a launch before Thanksgiving.
Construction for this tower likely would get under way after Waihonua or Symphony, but completion would be accelerated because the tower’s foundation and parking structure already exist.
Arce said his firm, along with local co-developer Kobayashi Group and Texas-based Howard Hughes Corp., which owns the rights to build the tower, don’t see market timing and other projects as factors affecting the Nordstrom tower.
“Just like Waikiki, I think Ala Moana Center is a unique market that can be driven in any cycle,” he said. “All of us are optimistic that it will be well received.”
The Nordstrom tower, which doesn’t have a name yet, is being positioned as ultraluxury with prices largely around or above $1 million.
Symphony and Waihonua also focus on the luxury market. The three together, if built, would deliver 950 units. But more are in the works.
Four other towers are being considered, though they are more tentative. Of these, two towers are envisioned on the former Honolulu Advertiser property in Kakaako. Developer Franco Mola of Coastal Rim Properties has an option to buy the site, and has had discussions with the Hawaii Community Development Authority about putting up two towers. However, Coastal Rim hasn’t filed an application with the agency, which authorizes high-rise construction in Kakaako.
Another possible addition could come from a firm led by California developer Jason Grosfeld that recently bought a Waikiki site zoned for high-rise condo development. An earlier plan by a previous owner contemplated a condo, hotel or time share. Grosfeld said options are being studied.
Also lined up is a tower at the corner of South Street and Ala Moana Boulevard once occupied by CompUSA. A&B recently obtained an option to buy the site intending to build a tower after finishing Waihonua.
Cassiday said there clearly isn’t enough demand for seven towers, and that all these developers won’t go forward in the near term and compete with each other unless demand surges.
The Honolulu condo tower development boom in the early 2000s — an event that produced about a dozen towers between downtown and Waikiki — was preceeded by four years of robust growth in home resales.
From 1997 to 2000, Oahu home resales rose between 10 percent and 24 percent per year, with condo resale volume growth hitting 25 percent in two of those years, according to Honolulu Board of Realtors statistics.
Condo resales last year rose 1 percent. A 12 percent gain in 2010 followed a 12 percent drop in 2009.
Clearly, A&B sees something encouraging in current market dynamics to start first with a new tower. In the previous development wave, A&B also started early, announcing a tower in Waikiki called Lanikea in 2001. One other project, 215 N. King by local affordable housing developer Marshall Hung, had similar timing.
A luxury tower called Hokua in Kakaako followed with a 2002 launch. MacNaughton and Kobayashi developed Hokua, which A&B also took part in by providing some financing.
A rush followed the stunning near-sellout of Hokua units for $1.1 million on average. Six or so more towers were announced in 2003 and 2004, including Capitol Place downtown by MacNaughton/Kobayashi and Keola La‘i in Kakaako by A&B.
As is common in Hawaii’s real estate cycles, there were some casualties after the boom ended. A tower in Kakaako called Moana Vista, announced in 2005, was forced to halt construction in 2008. OliverMcMillan later acquired the project, restarted construction and last year finished the tower now known as Pacifica.
Another project, Allure Waikiki, started sales in 2007 and finished construction in 2010. But Allure’s Chicago-based developer Fifield Cos. managed to sell only 39 percent of units — 113 of 291 — and lost the property to a lender. After the lender failed, investors and the Federal Deposit Insurance Corp. assumed control, redesigned some spaces and resumed sales. About 60 more units have been sold by the new group over the last 15 months, property records show.
Original developers of Allure and Moana Vista lost their projects, while others that had teed up plans positioned for previous booms didn’t move forward as expected.
One such project was announced in 2006 called Ko‘olua in Kakaako. In 2007 the developer sold the property to another developer who anticipated starting construction in 2008 and finishing in 2010. But work never began, and the developer sold the property in 2010 to A&B, which is now moving ahead with Waihonua on the site.
Another fizzled plan involved landowner Kamehameha Schools seeking a development partner in 2005 to build a tower on the mauka side of Ala Moana Boulevard, between Coral and Cooke streets.
Even building two towers on the former Honolulu Advertiser property was proposed previously. A development partnership announced such a plan in 1984.
Source: Honolulu Star Advertiser