Strong condo market gets O'ahu developers going
By Andrew Gomes
Advertiser Staff Writer
As O'ahu condominium sales continue to set monthly records, three developers sitting on prime real estate with views of Ala Moana Beach are maneuvering to build the next gleaming, glass-sided residential towers and capitalize on the hot market.
The competing interests — from a local real estate development partnership, to a South Korean steel company and a trust representing the Republic of Nauru — illustrate a diverse confidence among firms eager to bet hundreds of millions of dollars that the strong condo market will hold up for the next few years.
Last month, condo sales on the island surged nearly 30 percent, to 557 units — the highest level in more than a decade — fueled by strong investor demand, a tight rental market and low interest rates.
"This is what always happens," said Harvey Shapiro, a research economist for the Honolulu Board of Realtors. "The developers will get their ideas when the market is hot."
Ricky Cassiday, a Hawai'i residential real estate development consultant, said all three semiluxury to luxury high-rises conceivably could be built and not outstrip demand, though there is a risk that the market will slow or fall by the time one or more are developed.
The projects also would help ease pressure on existing condo inventory and prices, Cassiday said.
O'ahu condos last month resold at a median price of $150,000, up 16.3 percent from August 2001. Condo inventory in the area that encompasses Kaka'ako, Ala Moana and the Sheridan Tract is at about 110 units.
Two of the three projects — Emerald Tower by the Hawai'i unit of South Korea-based Pohang Iron and Steel Co., and Hokuloa Tower by Nauru Phosphate Royalties (Honolulu) Development Inc. — have been on the drawing board for several years, waiting for the state's economic and real estate slumps to turn around.
However the newcomer, Hokua, a local partnership of The MacNaughton Group and Kobayashi Group, is moving ahead fast.
The team anticipates beginning sales by the end of the year and breaking ground in as little as nine months after that.
"I think the timing couldn't be better," said Jeff Arce, chief financial officer of the MacNaughton Group. "We are in a good market right now."
Earlier this month, the MacNaughton/Kobayashi team submitted preliminary development plans with the Hawai'i Community Development Authority, the state agency that oversees development in Kaka'ako.
The tower, just 'ewa of Nauru Tower on Ala Moana, would be 41 stories with 247 units, 748 parking spaces, a retail component and a third-floor terrace with a park, health club, spa and pool.
Of the two other projects, Nauru Phosphate's Hokuloa has a development permit and plans but lacks a development partner, while Emerald Tower has an expired permit but also needs a development partner who could modify existing plans.
Nauru Phosphate, which developed Nauru and Hawaiki towers, this year disclosed financing problems for Hokuloa. Since then, the company has received interest from potential investors who would assist with or take over the project, according to project broker Karl Heyer, who said discussions are continuing.
Pohang's Posec Hawai'i Inc. also has been unable to finance its high-rise, and for the last year has been trying to find a joint-venture partner. Robert Lee, Posec's secretary and treasurer, said the company is negotiating with a Mainland construction company.
Arce said his team has talked to several parties interested in financing the Hokua project, including local lenders and equity partners from inside and outside Hawai'i.
Jan Yokota, executive director of the Hawai'i Community Development Authority, said it is encouraging that all three developers are working to get their projects off the ground. "We're hoping for the best. We would love to see all three completed," she said.
Cassiday said: "I think they all could get out of the ground — certainly two of the three — and find out how high the market's willing to go with no problem. The high end is a great market in a cycle (reaching new highs). They'll get good offshore demand and there isn't much out there."
The 110 or so condos in the Kaka'ako-Ala Moana-Sheridan area that are available for resale range from a $3 million fee-simple unit in One Waterfront Towers, to a $60,000 leasehold low-rise on Sheridan Street.
Condos in the area have been selling in increasing numbers over the last few years. From January to August, sales went from 117 in 1999 to 141 in 2000 to 151 last year and 161 this year, Shapiro said.
"The condo numbers are pushing developers into a market they haven't been in in a long time," Cassiday said. "(Jack) Myers left. (Bruce) Stark went bankrupt. These were the big condo developers. That was a sign that the market went to hell.
"Now it's climbed back out and it's somewhere between purgatory and heaven."
• • •
