Lease hurdles could quash Beachcomber Hotel sale
By Andrew Gomes
Advertiser Staff Writer
Hawai'i homebuilder Stanford Carr has an offer in escrow on the 500-room Waikiki Beachcomber Hotel in a deal that, if completed, could bring new life to yet another major hotel property in Waikiki.
The purchase would be another of several recent sales of Waikiki hotels by Japanese companies and would mark the entry into the hotel ownership business for the residential developer.
But the deal is a complicated one that industry observers say still faces major stumbling blocks.
Carr's offer for the leasehold hotel is estimated to be around $30 million. Carr would continue to operate the Beachcomber and make substantial renovations, according to people familiar with the deal who asked not to be named because of their ties to the situation.
Keys to making the deal work, industry experts said, are a more favorable ground lease with landowner The Queen Emma Foundation, the ability to sublease the retail space occupied by Liberty House and a willingness by the hotel owner to sell at a favorable price.
The Beachcomber is owned by Kahaone Investment Corp., a subsidiary of Mitsui Leasing USA Inc. Kahaone has listed the hotel for sale off and on since 1999.
Kevin Aucello, a vice president at real estate firm CB Richard Ellis Hawaii Inc., which is representing Kahaone, declined to discuss the sale. A Queen Emma Foundation spokes-man said it would be inappropriate to comment.
CB Richard Ellis earlier this year began marketing the Beachcomber with no asking price.
The building without the land is assessed by the city at $37 million.
The hotel is at 2300 Kalakaua Ave., between the International Market Place and the Waikiki theaters. Main attractions at the hotel are John Hirokawa's Magic of Polynesia nightly dinner show and Don Ho's five-night-a-week performances.
Aucello said the midrange hotel built in 1970 has occupancies above the near-80 percent Waikiki average. But the Beachcomber's best feature, from a selling point, is its location in the center of Waikiki.
Still, the property's most troublesome feature is its ground lease with the foundation. The lease, up for renegotiation in 2005, needs to be restructured with lower lease rent, industry experts said.
"I think that's a huge hurdle," said local hospitality industry consultant Ron Watanabe.
A secondary but critical linchpin for Carr completing the deal is maximizing revenue from major retail tenant Liberty House, which was recently bought by Federated Department Stores Inc. and is being converted to Macy's.
Liberty House pays low rent to the hotel, because of the relationship it had with Amfac Inc., which built the Beachcomber and once owned Liberty House.
The retailer had pursued plans to sublease its 40,000 square feet of street-front space at the Beachcomber, but Macy's has said it will continue operating a department store on the premises. The Liberty House lease is up for renegotiation in about five years.
Carr is expected to seek a deal that would allow him to sublease the Liberty House space to multiple retail tenants who would pay considerably higher rent.
"It's a complicated deal," Watanabe said. "It's going to take the (Queen Emma) trust, and it's going to take Mitsui and it's going to take Macy's now."
Financing also might pose difficulties, according to Watanabe, who said funding hotel purchases in this market has become difficult.
But a sale would be a positive development for Waikiki, which has built momentum in planned or recently completed renovations to its parks, beaches, businesses and hotels at a cost exceeding $750 million.
Among the improvements: Outrigger's planned $300 million redevelopment project along Lewers Street, the DFS Galleria, Kuhio Beach, Waikiki Beach Marriott Resort, Renaissance 'Ilikai Waikiki Hotel and the Aston Waikiki Beach Hotel.
The Waikiki Beach Marriott Resort, the Ilikai and the Aston Waikiki all were purchased from Japanese owners who had struggled to maintain the properties. Mitsui Leasing has fared better with the Beachcomber, which observers said is in good condition. Mitsui Leasing acquired the property in a forced sale in 1992 from Azabu USA, which was in debt to Mitsui Leasing affiliate Mitsui Trust and Banking Co. Azabu paid about $60 million for the hotel in 1987.
Carr is president of SCD International. He is also president of Kehalani Development Co., the former C. Brewer Homes he purchased in late 1999.
Carr intends to sell Kehalani's main asset, the 470-acre master-planned residential and commercial project in Wailuku, Maui.
The developer has built homes in Kapolei and Pukalani on Maui. He is developing projects in Hawai'i Kai and at the Waikoloa Beach Resort on the Big Island.
Andrew Gomes can be reached at agomes@honoluluadvertiser.com or 525-8065.
