Market stays quiet for Kahala Avenue homes

A beachfront lot along Kahala Avenue is offered for sale for $9.95 million by Coldwell Banker. Bruce Asato • The Honolulu Advertiser

By Suzanne Roig
Advertiser East Honolulu Writer

KAHALA — Real estate sales are booming across O‘ahu, but not on Kahala Avenue, where $3 million is the average asking price and $1.2 million will get you nothing more than a “tear-down.”

Some of O‘ahu‘s most exclusive homes hide behind towering block walls, fancy gates and dense hedges on this tony street. Out front, “for sale” signs have become almost a permanent fixture in the yards of the well-groomed estates just east of Diamond Head.

About 20 multimillion-dollar homes here are on the market, but some have languished there for more than four years.

The woozy stock market and economic instability have turned “ooh” to “ow” on the upper end of Hawai‘i’s real estate market, a trend that is also being played out in the expensive neighborhoods on the Mainland.

Entrepreneurs who scooped up beachfront playgrounds several years ago when the stock market was soaring and $3 million seemed like a bargain are unloading their properties in search of cash.

But few are buying.

“There’s been a slowdown in the high end in general,” said Mary Worrall of Mary Worrall & Associates in Kahala.

While the market for O‘ahu homes in the low-to-middle range, roughly from $300,000 to $600,000, is the hottest it’s been in years, the high-end market has cooled. Realtors say two properties in the $10-million price range on KÅhala Avenue closed within the past two weeks, but that it’s generally been quiet for most of the year.

“Above $3 million, real estate isn’t moving because of the Silicon Valley situation, the stock market and the Japanese economy,” said Harlin Young, a real estate appraiser at Harlin Young and Co. “But below $3 million there’s not enough inventory out there.”

From pre-statehood days, Kahala’s proximity to downtown, easy access and white sand beaches have drawn the wealthy to this area. The neighborhood has been home to the rich and famous, from Pat Bowlen, owner of the Denver Broncos professional football team, to tobacco heiress Doris Duke in the 1950s, and Clare Boothe Luce.

Their fortunes made, all bought a piece of paradise in the neighborhood.

The stall in real estate sales is the latest in the area’s boom-and-bust cycle, said Ricky Cassiday, a consultant to Prudential Locations Inc. who analyzes market trends. Every three to seven years, investors come out and snap up homes, then turn around and sell them three to seven years later.

“A lot of speculators bought in Kahala when the market was down and the Nasdaq was way up,” Cassiday said. “They grabbed at the land and rebuilt the homes. That’s not a bad model when the market is up and getting 25 percent return on an investment.”

The last uptick in the cycle came in the late 1990s, with many of the buyers coming from the dot-com business.

“They came with cash and bought up Kahala,” said Stephany Sofos, of SL Sofos &Co. Ltd., a real estate consulting firm. “Now, when the stock market is blowing out, they’re selling these properties to get money.”

A drop in the square-foot price of property in Kahala suggests that demand is significantly lower than supply, according to Young.

During the heyday of Japanese investment in the late 1980s, Kahala Avenue properties were being snapped up at $500 per square foot. Buyers would cruise past an open house and write up offers inside their limousines. Sometimes bidding wars would erupt.

Today that price is under $200 per square foot, with one property closing last week at $137 per square foot, Worrall said.

That low price might have been attributable to special circumstances like a small lot or a house in tear-down condition, she said.

“It will take time to tell if we’re entering a period where values are dropping,” Worrall said.

None of this to suggest that Kahala Avenue is suddenly within reach of the average Hawai‘i family tired of the commute from Mililani. A modest home being sold “as is” and likely to be torn down is priced at $1.2 million. Even small, worn houses five or six blocks from the beach still go for close to $1 million.

For $14.7 million, a buyer can get a stately Hawaiian-style home with koa floors, a swimming pool, central air conditioning, a four-car garage with a two-bedroom apartment above it and less than an acre of Kahala beachfront land.

It’s not a glitzy house, said Worrall, the listor. It looks like old-fashioned Kahala Avenue — more plantation style, no marble and shiny surfaces.

It’s also the highest-priced home on the market on Kahala Avenue.

But prices can come down even on the most expensive homes.

The asking price for the house that’s been on the market for four years has dropped nearly a third from the original $15 million, according to Board of Realtors records.

The new price? A bargain at $10.6 million.